The Trump Administration recently discussed the possibility of allowing homeowners to keep their mortgage rates when they move. This process is done using a portable mortgage. Allowing people to keep their lower mortgage rates could encourage them to move and free up supply. It's a process that is already widely available in the UK and Canada.
Currently, just over half of homeowners with a mortgage have rates below 4%.
What is a portable mortgage and how does it work?
A portable mortgage allows a borrower to transfer their existing mortgage and mortgage rate to a new property when they move, instead of taking out a brand-new loan.
For instance, imagine a homeowner selling their house for $400,000 with half of that paid off on a 3% mortgage. With 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.
Things get trickier if the new home is more expensive. If it costs $450,000, for example, the buyer would need to cover the extra $50,000 either in cash or through a second, smaller loan likely issued at the current higher interest rate.
Could it work in the U.S.?
Lenders are unlikely to support the idea because they depend on the constant buying and selling of homes for a significant portion of their revenue, which means it will probably require substantial government intervention for portable mortgages to become commonplace in our market.
Porting a mortgage requires the borrower to submit a new mortgage application. The lender will apply the same strict financial criteria as they do for all mortgage applications. For instance, if your credit score has recently declined, you may not gain approval.
The hope is that if homeowners could move without losing their low rates, more homes would go up for sale, giving buyers who’ve been locked out a better shot. But the effects on supply would likely be limited, and it might take Congress passing a law to iron out legal wrinkles.
Might this backfire?
Portable mortgages have the potential to disrupt the core of the US housing market: mortgage-backed securities. These securities are essentially collections of mortgages that banks or lenders sell to investors. This process provides banks with the cash necessary to issue new loans and maintain the flow of the mortgage market.
If homeowners can take their loans with them when they move, fewer loans will be paid off early – which means more risk for investors, who might demand higher interest rates to compensate.
I believe the government should meet with representatives from Canada and the UK to learn how they have been able to offer this mortgage option. This could help us explore how similar programs can be implemented here in the US.
Personally, I would love for this to happen, especially since my mortgage rate is currently at 2%!
Time will tell!
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