Secret #43 – Portable Mortgages Would Prevent Today’s Mortgage Lock-in Effect
Canada and the U.K. have “portable” mortgages which means if you have a good interest rate on your current mortgage and you don’t want to lose it when you buy your next house, you can take the remaining amount you owe on your current mortgage and shift it over to your new house when you sell your old one. Your lender will charge you a fee and have a lot of restrictions, of course, but you will still have the same mortgage, your lender just has different collateral on that mortgage.
If you have 27 years left on your 3% mortgage, for instance, when you sell your house, instead of paying off your mortgage, you take that money you owe your lender and use it toward buying your next house and you keep the same mortgage – same interest rate, same payment, etc. Your new house is now your lender’s collateral.
It’s more complex than just paying off the old mortgage. The paperwork is a lot more and your lender will charge you an additional fee to port your mortgage. Of course, if you are buying a more expensive house, you’d need to have the cash to make up the difference or you would need to take out a second mortgage.
In Canada, instead of having 2 mortgages – the old low-rate mortgage and a new higher-rate second mortgage – buyers often work out 1 new “blended” mortgage with their current mortgage lender. The new mortgage has a mortgage rate that is between what your old low-rate mortgage had and what the rate would be on getting a second mortgage for the rest of the amount borrowed.
If you’ve been paying your mortgage on time for years, why can't you just move the rest of your mortgage to your next house?
Instead of paying off your old mortgage when you sell the old house, you move the money you owe the mortgage company over to help you buy your next house and that next house is now the mortgage company’s collateral.
FHA and VA mortgages are already assumable. Portable mortgages are complex but so are the assumable mortgages they already have.
Somebody tell FHA, VA, Fannie and Freddie to make it happen.