Definition of "Portable Mortgage"

Luz  Abreu real estate agent

Written by

Luz Abreuelite badge icon

Home Miami, Realtors

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.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Mortgage Terms

The maximum allowable ratio of loan-to- value (LTV) on any loan program. Generally, these are set by mortgage insurers or by lenders and can range up to 100%, although some programs will ...

An upfront cash payment required by the lender as part of the charge for the loan, expressed as a percent of the loan amount; e.g., '3 points' means a charge equal to 3% of the loan ...

The portion of the monthly payment that is used to reduce the loan balance. ...

Equations used to derive common measures used in the mortgage market, such as monthly payment, balance, and APR. ...

An agreement by the lender not to exercise the legal right to foreclose in exchange for an agreement by the borrower to a payment plan that will cure the borrowers delinquency. ...

An option attached to a mortgage, which allows the borrower to pay only the interest for some period. A mortgage is 'interest only' if the monthly mortgage payment does not include any ...

The period over which the interest due the lender is calculated. The interest accrual period may or may not correspond to the payment period. On the annual accrual mortgages in the UK, ...

A mortgage on which half the monthly payment is paid twice a month. It should be called a 'semi-monthly mortgage' but market practice often trumps logic. In contrast to a biweekly, a ...

Points paid by a lender for a loan with a rate above the rate on a zero point loan. For example, a lender might quote the following prices: 8%/0 points, 7.5%/3 points, 8.75%/-2.5 points. ...

Popular Mortgage Questions