We would like to move, but don’t want to exchange our low interest rate for today’s high interest rate. I just read about something called porting a mortgage. Anybody here have any experience with this? Seems like if it was common practice, I would have heard of it before.
Good idea. Please keep us advised. What does your lender say?
I haven’t talked to them yet. Just read about this for the first time about 10 minutes ago! 
I will update when I talk to them.
I worked in the mortgage servicing industry in the US for many years, and never heard of this, so I don’t think it’s common in the US. Most of the articles online that I see about this are from Canada and/or the UK - which have very different mortgage structures than the US does. It will be interesting to find out if your mortgage lender allows it.
AJ
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My lender does not offer this. They have heard of it, but said it must be extremely rare. Also said you would probably have to have special language in the original loan contract to allow for this later. Maybe a “portfolio product” - I’m not sure what that means. But not available in my case.
A portfolio loan is one that is kept in house by the original lender. That’s very uncommon in the US, where more than 90% of mortgage loans are immediately sold to one of the government sponsored enterprises (GSEs) known as Fannie Mae (FNMA), Freddie Mac (FHLMC) and Farmer Mac (FAMC). Then the GSE will ‘securitize’ the mortgages, which is a process where they bundle up a large number of loans and divide them out into mortgage backed securities that are then sold to investors. I suspect that that the investors that buy the securities have insisted on language that does not allow for porting.
You can find out if Fannie Mae or Freddie Mac purchased your mortgage by using these websites:
- Fannie Mae: www.KnowYourOptions.com/loanlookup
- Freddie Mac: Loan Look-Up Tool - My Home by Freddie Mac
AJ
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That makes sense. Thanks!
Porting a mortgage will never become come because the majority of mortgages are securitized by the GSEs (Government Sponsored Entities such as Fannie Mae and Freddie Mac). A couple of reasons why porting is not as easy as one thinks:
- If you have a 3% rate and current rates are 6.50%, it benefits the lenders to not port your loan as they could earn a better return. Would you take a 3% rate of return right now when you can go out and get 5% in a savings or TBill?
- A borrower’s financial situation could have changed for the worse and borrower may not qualify for the same mortgage years later.
- The collateral is different and potentially the loan-to-value. If your original 3% loan was taken out when you put 20% down, and now same borrower is trying to port the mortgage on a property with less down (say 5% down), then that is increased risk for the lender and makes no sense to allow for a port. Also if one goes from a single family to a condo. The GSEs deem condos a tad riskier than a single family. Same with multi-units.
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Loan portability might be an opportunity for a clever finance company. Suppose you created an umbrella like entity for the mortgage. Then you might be able to transfer the mortgage within the umbrella with lender permission.
Feasible? Tax implications? New laws required.
In a highly competitive market this might be a way to attract new business.
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Could be possible if people expect current rates to increase, since they are still on the lower end of historical levels excluding the very low rates from the financial crisis (end of 2008) until the Fed starting raising rates in 2022. From Mortgage Rates Chart | Historical and Current Rate Trends (themortgagereports.com)
That said, since many current home buyers were conditioned to expect 2.5% - 4% loans during those low rate years, I’m not sure how many of them would think that portability at the current rates would be much of a benefit, so they probably wouldn’t pay extra for it. And since the loan company wouldn’t be able to sell to the GSEs, I’d question if they would be able to even offer loans at today’s rates. Which means that people would have to pay extra for that feature - either by buying down rates or paying a higher rate. There would also be some costs to set up the umbrella entity and get investment money for it, since these loans could not be sold to GSEs.
Why would there be tax implications? As long as the loan is collateral for the home that the borrower is living in, or the home that they’ve designated their 2nd home, the interest would still be deductible. And why would there need to be new laws? All of the current laws for mortgages would still apply, and there is nothing in those laws preventing a contract between a borrower and a lender that allows a switch in collateral mid-stream.
AJ
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I would point out in today’s environment, many borrowers are staying in their current home precisely because they have a low rate mortgage, and don’t want to give it up. So the lender is going to be stuck with the 3% loan anyway, in most cases. That’s part of the issue with low inventory of houses for sale - people aren’t moving up like they did before rates went so low.
That was actually one of the requirements in most of the articles that I saw on mortgage portability - that the borrower has to re-qualify at using the lender’s current requirements. I would also point out that even without porting the loan, in order to buy a different house with a mortgage, they are still going to have to qualify for that loan with the lender’s current requirements.
The definition of porting a loan requires that the loan balance remain the same. For someone who bought a $250k house with an 80% LTV loan, that would mean that their mortgage started out at $200k. After about 5 years, let’s say the loan balance is now $175k and the house is now worth $300k (about a 3.7% growth rate). In order to keep the same $175k loan balance and only put 5% down, that would mean that they were trading down from a $300k house to a $184k house. Sure, some people may do that, but most buyers trade up, but not down.
I’m sure that the lenders could figure a way to require the property be the same type of property in order to port the loan.
AJ
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