Portable Mortgage

A mortgage that can be moved from one property to another. Ordinarily, you
repay your mortgage when you sell your house and take out a new mortgage on the new home you
purchase. With a portable mortgage, you transfer the old mortgage to the new property. Benefits to
the borrower: There are two. One is that it avoids the costs of taking out a new mortgage. This cost
must be set against the cost of paying 3/8% more in rate, which rises the longer the period between
the first purchase and the second. The break-even period comes out to roughly four years on a
$150,000 loan. If you expect that you won't be buying your next house within four years, the cost
saving on the future mortgage won't cover the cost penalty imposed by the 3/8% rate premium. The
period is a little shorter on a larger loan, longer on a smaller loan. The second benefit is that it
allows you to avoid any rise in market interest rates that occurs between the time you purchase one
house and the time you purchase the next one. Since World War II, mortgage rates have been as low as
4% and as high as 18%. When rates are about 6%, there is clearly much greater potential for rise than
for decline. If rates increase, the portable mortgage protects you, and if they decrease, you can get
the benefit by refinancing. There is no prepayment penalty. Borrowers who confidently expect to move
within five or six years and fear that a major spike in rates could seriously crimp their plans may
find the 3/8% rate increment a reasonable insurance premium. It is less valuable for borrowers who
expect to move every three years, since the transfer option can only be used once. Borrowers with the
excellent credit needed to qualify for a portable mortgage should be confident that they can maintain
that record. Borrowers in bankruptcy or behind in their payments cannot exercise the transfer option.
In such a situation, they would have paid the 3/8% rate increment for nothing.

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