If you have a great rate on your mortgage, it may feel tough to give that up to move houses — especially if current mortgage rates are significantly higher. But what if you could move your mortgage with you? This is, effectively, what portable mortgages make possible: they allow existing homeowners to take their existing rate with them to a new property.
As of now, this type of mortgage is primarily available abroad. But the Trump administration has floated the idea of making it possible in the U.S. Those in favor “argue that portability could loosen up inventory by making it more affordable for current homeowners to move,” said Kiplinger. However, others contend that it may “introduce significant complications,” not to mention “offer little benefit to renters or first-time buyers struggling with today’s prices.”
How do portable mortgages work?
While “selling your home usually means saying goodbye to that loan and the rates and terms attached, a portable mortgage allows you to move with it,” said Realtor.com. Say, for example, there is a “homeowner selling their house for $400,000 with half of that paid off on a 3% mortgage,” said CNN Business. If they had a portable mortgage, they “could sell their home and transfer the $200,000 left on the loan to the new house, keeping the 3% rate.”
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The math can get more complicated if the new home costs more than the last one did. In that case, it would be necessary to cover the difference in cost between the two properties, “either in cash or through a second, smaller loan likely issued at the current higher interest rate,” said CNN.
Why are portable mortgages not already available in the US?
In the U.K. and Canada, it is already possible to get a portable mortgage. But the concept has not made its way to the U.S. yet. This is largely due to a vast difference in the usual lengths of mortgage terms. While in the U.S., mortgage terms are typically 15 or 30 years, in the U.K. and Canada, terms are usually only two to five years. These shorter loan terms “lend themselves to portability because borrowers can’t lock in an interest rate for decades,” said Yahoo Finance.
An additional complication is the central role of mortgage-backed securities in the U.S. housing market. Those are “essentially bundles of mortgages that banks or lenders sell to investors, which gives the banks the cash they need to issue new loans and keep the mortgage market flowing,” said CNN Business.
Could portable mortgages help with home affordability?
In short, “while there’s a clear upside to portable mortgages for homeowners with low interest rates, there’s little benefit to everyone else,” said Realtor.com. First-time homebuyers, for instance, who do not already have a competitive mortgage rate locked in, would still have to contend with whatever current mortgage rates are.
There is also the possibility that the practice, if implemented, could backfire — and not just due to complications around mortgage-backed securities. The “favorable financing of some” might in turn “push home prices up for all by increasing buying power, much like what happened during the pandemic housing boom,” said Realtor.com, citing senior economist Jake Krimmel.
