E*Trade Offers Consumers a Mortgage That Moves with Them
A new program introduced by E*Trade Group Inc.'s E*Trade Mortgage will enable consumers to lock-in an interest rate now and transfer it to the next home they purchase, instead of paying off the old loan and applying for a new loan at potentially higher market interest rates.
The company says its "Mortgage on the Move" program will be offered to borrowers nationwide, but only for a limited time. The company wouldn't say how long it would be making the portable mortgages available, but said it would depend to some degree on the market as these products tend to be less desirable when rates go up.
E*Trade said it expects this program to drive overall purchase money product volume for E*Trade Mortgage.
"Industry experts predict that mortgage interest rates will rise significantly in the next several years," said Robert Bernabe, head of retail mortgage lending at E*Trade Financial. "This is the first time this concept will be widely available in the United States, giving consumers the ability to extend the benefit of today's record-low interest rates."
While popular in Canada, the concept of a portable mortgage has yet to catch on here in the U.S.
E*Trade will offer the portable mortgage only to purchase money borrowers on loans between $66,000 and $1 million. When a borrower sells the original property, the note will survive and reattach to the new property. E*Trade will not impose any fees on the transfer, but there will be some costs involved, the company said, such as legal and recording fees.
In the case of a trade-up, where a borrower moves into a more expensive home and needs more money to close the deal, E*Trade will write a second mortgage at current interest rates for up to 80% CLTV. The rate will be blended, but E*Trade will amortize the new loan in with the first in order to offer the borrower lower payments than is possible with a traditional piggyback loan scenario.
Borrowers will not be offered a portable line of credit that would allow them to borrow more money at the initial rates.
If additional funds are not necessary when the loan is transported to a new property, no additional underwriting will be performed. However, if a second mortgage is written, the borrower will have to be re-qualified.
E*Trade will hold all of its portable mortgages in portfolio.
While most secondary market players don't have any experience with portable mortgages, most brokers don't want any, as it takes away repeat business they count on when an existing customer buys a new home.
But homebuilders are expected to appreciate the new program. After refinancing into a lower interest rate loan, borrowers are often hesitant to trade up to a larger home if it means paying a significantly higher interest rate on their next loan. This often translates into slower new home sales. With rates at historical lows, many builders are worried that their industry will suffer when rates rise.
Most consumers, it appears, are interested in finding out more about this product. In a CNN/Money poll of over 15,000 viewers of that online publication's story on the E*Trade product, 80% said the concept appealed to them.
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