Portable mortgages allow you to move your mortgage from one property to another. When moving and taking out a new loan, instead of repaying your initial mortgage, you transfer it to the new home. This type of mortgage first appeared in 2003 and was introduced by E*TRADE Mortgage. The portable mortgage was only offered on 30-year mortgages with a fixed interest rate. It featured a higher interest rate than a regular mortgage, and it could only be used to purchase single-family homes. The home purchased with a portable mortgage was required to be the borrower’s permanent residence. The borrower was also required to have a clean credit report, and provide all of the necessary documentation.
Advantages of a Portable Mortgage
Like all mortgages, a portable mortgage can be the perfect fit for you, depending on several factors. For example, if you move frequently or have a job that requires you to change locations every few years, the portable mortgage might be a great choice. There are two main advantages of a portable mortgage:
- Avoid the cost of taking out a new mortgage loan. Usually, when you take out a new mortgage loan, closing costs and other fees can be in the thousands of dollars, making the overall cost of the loan much higher than you initially thought it would be. You will still have to pay some fees, but you will save significant money in closing costs compared to taking out a new loan without having the portable mortgage option. You will also avoid paying any pre-payment penalties on your initial loan.
- Avoid an increase in interest rate. If you have qualified for a good mortgage interest rate on your original loan, then you can carry the same interest rate to your new loan. If your credit was good when you took out the first mortgage, but has decreased since then, you will still be able to qualify for the same interest rates, unlike with a regular mortgage loan where the interest rate that your lender will give you will be strongly influenced by your current credit score. This can be a great advantage, especially if you are moving frequently.
Disadvantages of a Portable Mortgage
Portable mortgages do feature some disadvantages, as well, but it all comes down to whether you really need this type of mortgage. As with the advantages, how much you move has an influence on how well this mortgage suits you. If you don’t move too often, then this might not be such a great choice for you when it comes to choosing a mortgage loan type. The two main disadvantages of a portable mortgage are:
- Higher interest rates. A portable mortgage is a good choice for some individuals, and they will save money even if the interest rates are higher. If you are not in the situation of needing a portable mortgage, and come to the conclusion that you will end up paying more, then it is better to keep searching for a conventional loan that might better suit you.
- Good credit required. Unlike regular mortgage loans, where you can also qualify with not so stellar credit, in order to get approved for a portable mortgage, you will need a perfect credit score.
Deciding whether a portable mortgage is right for you or not depends mainly on how long you plan to keep your first home before moving into a new one. So the best thing to do is do your homework, learn what is involved with portable mortgage, know its advantages and disadvantages, but more importantly, have clear knowledge of your financial situation and future plans.