The Trump administration has suggested a key mortgage change after the president’s call for a 50-year mortgage drew in criticism over the implications on equity and long-term debt.
A new idea, portable mortgages, however, would allow homeowners to transfer their current mortgage rate from one home to another, potentially boosting affordability for some homeowners.
Why It Matters
The median sale price of a home was $415,200 in September, according to CNBC. And with an average current interest rate of roughly 6.3 percent, many Americans are unable to afford their own home.
Different types of mortgages could increase the odds of more Americans buying their own home, but portable mortgages also have their fair share of critics.
What To Know
Bill Pulte, the director of the Federal Housing Finance Agency, said the Trump administration is “actively evaluating portable mortgages.”
While more details have yet to be released, portable mortgages generally allow homeowners to transfer their current mortgage rates from one home to another.
“A portable mortgage allows a homeowner to transfer their current mortgage to another property, keeping the same interest rate and overall terms,” LendingTree’s Chief Consumer Finance Analyst, Matt Schulz, told Newsweek. “It means that when you move from one house to another, you can take the original house’s mortgage with you. For the many Americans who feel stuck in their current home because their mortgage rate is far lower than those widely available today, this could potentially be a game-changer.”
In theory, portable mortgages could unlock some activity and free up inventory, said Jake Krimmel, a Realtor.com senior economist. However, the benefits would be limited mostly to older homeowners and likely would not present as a pro for millennial and Gen Z buyers.
“But empirical work shows the lock-in effect explains only about half of the recent decline in mobility, so portability is unlikely to bring sales fully back to normal levels,” Krimmel told Newsweek. “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.”
What People Are Saying
LendingTree’s Chief Consumer Finance Analyst, Matt Schulz, told Newsweek: “It could have a major impact on the housing market. The truth is that lots of Americans who want to buy a new home are sitting on the sidelines because they are scared to death of trading their current low-rate mortgage for a higher-rate one. If they were suddenly able to take their current mortgage rate with them, many people would likely jump at the opportunity.”
Jake Krimmel, a Realtor.com senior economist, told Newsweek: “Overall, portable mortgages might seem like a good way to mitigate the lock-in effect, a niche issue unique to current market conditions, but widespread implementation would introduce thorny technical problems and significant unintended consequences, many of them worse than the issue they’re trying to solve. Put simply, portability isn’t compatible with the architecture of U.S. mortgage finance, and even if it were, it wouldn’t fix the broader affordability problems facing the housing market today.”
Michael Ryan, a finance expert and the founder of MichaelRyanMoney.com, told Newsweek: “Gen Z and millennials still face high down payments and tight supply. Portability lets you keep your low rate; it doesn’t make the first house cheaper or build new homes. It’s a real solution to the lock-in problem, but it’s not a silver bullet for housing costs. Think of it as a tool to help you move smoothly when life changes. Not a way to dodge the underlying supply shortage and high prices.”
What Happens Next
Schulz said portable mortgages would likely have a greater impact on older Americans, as they are more likely to have bought a home when rates were at historic lows.
“However, there’s no question that many millennials are among those who bought when rates were low and now feel stuck,” Schulz said. “That house they bought years ago just might not be a fit for their growing families, for example, but the idea of trading their low rate for a higher one may just be more than they’re willing to bear. A portable mortgage could change that in a big way.”