Housing News

What is a Portable Mortgage? Could It Make Buying a New Home More Affordable?

In today’s pricey housing market, the idea of 50-year mortgages and now portable mortgages are being floated as ways to bring housing costs down.

But what is a portable mortgage? It’s a home loan that President Donald Trump’s administration has proposed that could follow a homeowner from property to property.

If the loan was offered, it could potentially allow a homeowner who locked in a low mortgage interest rate to transfer that mortgage to the next home they purchase without losing their rate.

This could have an appeal, especially to those who bought their home or refinanced when mortgage rates fell to record lows during the pandemic.

Mortgage interest rates dropped to an all-time low of 2.65% for 30-year, fixed-rate loans in the first week of January 2021, according to Freddie Mac. More recently, rates averaged 6.24% for the week ending Nov. 13.

Federal Housing Finance Agency Director Bill Pulte posted on X last week that “we are actively evaluating portable mortgages.”

Currently, when someone sells their home, their mortgage is paid off with the proceeds from the sale and the loan is closed. If the sellers are also buying a new home, they must secure a new loan to purchase that different home, unless they buy with cash.

Many homeowners have been reluctant to sell because they don’t want to give up their low rates to buy a new home with a higher rate and higher monthly housing payments. A portable mortgage may make it more affordable for homeowners to purchase different properties.

How could portable mortgages make it cheaper to buy a home?

Portable mortgages could theoretically make it cheaper to buy a home by adding more homes to the market.

The loans could incentivize many existing homeowners who are “locked-in” to their homes due to low rates to trade up or down into new homes.

That would free up housing stock, giving buyers more homes to choose from. This could potentially bring prices down if buyers aren’t locked in bidding wars and needing to offer more than the asking price to secure one of a limited number of homes.

“Portable mortgages might unlock some [housing] activity and free up inventory,” wrote Realtor.com Senior Economist Jake Krimmel in a post.

However, portable mortgages wouldn’t be a silver bullet, especially for homeowners who want to purchase a residence more than their original home.

Take someone who has a $300,000 mortgage at a 3.5% mortgage rate but needs a $400,000 loan to purchase a new home. They would need to take out an additional $100,000 loan, likely at today’s higher rates.

“Portability is unlikely to bring sales fully back to normal levels,” Krimmel wrote. “And the benefits would be highly selective: Only current mortgage holders with low rates would gain; renters and homeowners without a mortgage would still face today’s rates.”

Portable mortgages could result in higher mortgage interest rates

Portable mortgages could also lead to higher mortgage rates. That’s because mortgages are bundled together and sold to investors so lenders can free up money to make new loans. Investors buy the mortgages based on the risk of these loans, which includes property characteristics.

If mortgages could be transferred to different properties, it would be harder to determine the risk of these loans. Investors would likely want higher rates to protect them from the additional risk.

Additionally, homeowners would be more likely to keep their mortgages for longer if they could take them with them to new properties. But investors typically get paid off when someone moves.

“Investors would demand higher compensation for that extension risk, pushing mortgage rates higher, first abruptly and then structurally,” wrote Krimmel.

Ironically, portable mortgages could even wind up boosting home prices.

“Anyone able to ‘port’ a 3% mortgage into a new purchase would effectively be bidding with cheap financing in a 6% world,” wrote Krimmel. “That added purchasing power would push prices up, while renters and mortgage-free owners would still face today’s higher rates—only now with even higher list prices.”