With interest rates at historic lows, securing a great mortgage rate is easier than ever. But holding onto it when you move to a new home has never really been an option. That is — until now. A new loan program from online brokerage E-Trade could revolutionize the home mortgage industry.
IT’S THE ONE POSSESSION you could never send with the movers.
But with interest rates plummeting to historic lows, millions of Americans would do just about anything to keep their existing mortgage rate in place even when buying their next house.
Now they can, with online brokerage E-Trade, which is rolling out the first-ever, so-called “portable” mortgage program.
“It’s portable ... you take it with you somewhere else.” said Barry Habib, a broker at GMAC Mortgage.
E-Trade will offer the financing option to new home buyers only — not to consumers jumping on the red-hot refinancing bandwagon. And the option will come at a premium.
At current rates, a 30-year fixed mortgage would be 5.875 percent or about three-eighths of a percent higher than a regular mortgage. The higher rate reflecting the longer length of the loan.
Mortgage Broker Barry Habib says they’re not for everyone.
“Ideally — this may be for someone who is looking to move,” he said. “If you’re staying in the home for 10 years or so, you’re paying a premium at about a half a percent above the rates that are available right now. So it probably doesn’t make sense if you’re going to stay in the home long term.”
But if not, a better option, according to Habib, would be a five-year adjustable mortgage.
“If you are going to move within five years, I think you have to look a little bit deeper,” he said, “because today you can take about two percent rate savings on a five-year adjustable. So if you intend to move within five years, you’re probably better with a five-year adjustable which is going to save you ten percent.”
E-Trade believes the new program will give consumers a great way to take advantage of low interest rates.
As for what impact E-Trade’s program could have on the overall mortgage industry, experts say — at least in the short term — it’s likely to be limited. They say E-Trade can do this because it’s small — only contributing about one-percent of the overall mortgage business.
Plus, experts say there’s really no a place for portable mortgages in the secondary market where banks traditionally buy and sell mortgages — and make money. E-Trade is expected to keep its portable loans in its own portfolio.
“I think it’s good for consumers even if the mortgage product ends up not having a great deal of demand,” said Doug Duncan, chief economist at the Mortgage Bankers Association. “The thing that’s good about it it means that lenders are continuing to respond to the unique needs that different borrowers or households have.”
E-Trade said it will only offer the loans for a limited time, depending on market conditions.