Portable Mortgages Go Home To Home
Online financial services company E-Trade Group Inc. introduced a novel approach to home loans on Monday, offering portable mortgages that allow borrowers to take the loan — and low interest rate — with them when they move.
The portable mortgages are designed to appeal to people who want to lock in their monthly payments at today's low interest rates, even if they sell their home and buy a new one before the end of the typical loan's 30-year duration.
Getting such a mortgage comes at a price — the interest rate is slightly higher than on a conventional mortgage. E-Trade offered 30-year portable mortgages at 5.875 percent Monday, up from the conventional rate of 5.5 percent.
That premium might be worthwhile if, as some analysts expect, long-term interest rates climb during the next few years.
Typically, a homeowner who sells one home to buy another obtains an entirely new loan to finance the next purchase.
In most instances, the buyer obtains another 30-year loan at a new interest rate, incurring the hefty interest payments usually required during the first few years of a mortgage.
Under E-Trade's program, the 30-year mortgage travels with borrowers from home to home, with the interest rate remaining at the original price. The mortgage can only be transferred once, E-Trade spokeswoman Connie Dotson said late Monday, reversing an earlier statement that there were no limits on the number of times the loan could be moved.
CBS.Marketwatch.com Reporter Steve Kerch spoke with E-Trade's head of retail mortgage lending Robert Bernabe about the company's mortgage-to-go.
"This gives consumers a choice. It allows them to take their rate today and take it to their next home whether they are moving up or moving down," said Bernabe.
"We think this loan offers an incredible amount of value to consumers. This is in line with our overall effort to look at market conditions and find things in line with those conditions that can be of benefit to consumers," he said.
"The concept sounds good, but I want to see how it works in execution," said Paul Havemann, a vice president of HSH Associates, a mortgage research firm in Butler, N.J.
Portable mortgages are common in Ireland and Australia, but have never been a staple in the United States.
E-Trade rose to prominence during the late 1990s, offering discount commissions to individual investors who bought and sold stocks on the Internet.
The stock market's troubles of the past three years prompted E-Trade to focus on its online bank, which offers deposit accounts and a variety of loans, including mortgages.
E-Trade originated $6.2 billion in mortgages last year — a sliver of the $2.5 trillion market for U.S. home loans.
The concept won't be supported by mortgage brokers, who depend on borrowers repeatedly taking out home loans, Havemann said. Alienating mortgage brokers isn't a concern for E-Trade, though, since it sells products directly to consumers through the Internet, the mail and telephone.