Posted on: Tuesday, June 10, 2003
Portable mortgage travels with borrower
| • | Talk about comepetitive rates in Hawai'i |
By Michael Liedtke
Associated Press
SAN FRANCISCO — Online financial services rebel E-Trade Group Inc. tweaked the mortgage market yesterday, offering fixed-rate loans that borrowers can take with them as they change addresses.
The portable mortgages are designed to appeal to people who want to lock in their monthly payments at today's low interest rates, even if they sell their home and buy a new one before the end of the typical loan's 30-year duration.
Getting such a mortgage comes at a price — the interest rate is slightly higher than on a conventional mortgage. E-Trade offered 30-year portable mortgages at 5.875 percent yesterday, a hop up from the conventional rate of 5.5 percent. In Hawai'i, 30-year fixed APRs were at 5 percent last week.
The premium might be worthwhile if, as some analysts expect, long-term interest rates climb during the next few years.
But George Hao, president of Honolulu-based George Hao & Associates, a real estate consulting and appraisal firm, said he would rather take the 5 percent rate today than pay nearly 1 percentage point more to hedge against a future no one can predict.
"Rates could be the same or lower in a few years and you might be paying extra needlessly," he said.
John Burns, a real estate consultant in Irvine, Calif., said the program could be good for the consumers who believe they would be moving again soon, he said.
It's suitable for first-time homebuyers who believe they will move to a more expensive or larger home in a few years, Burns said. Those staying put for 20 years to 30 years would be better off with conventional mortgages.
Burns said people routinely pay higher rates for fixed-rate loans, which lock in rates, rather than adjustable rate mortgages. The E-Trade plan wouldn't be different.
Here's how it works: Typically, a homeowner who sells one home to buy another obtains a new loan to finance the next purchase.
In most instances, the buyer obtains another 30-year loan at a new rate, incurring the hefty interest payments usually required during the first few years of a mortgage.
Under E-Trade's program, the 30-year mortgage travels with borrowers from home to home, with the interest rate remaining at the original price and no limit on how many times the mortgage can be transferred.
"This is the equivalent of selling a car that lasts forever," said Paul Havemann, a vice president of HSH Associates, a mortgage research firm in Butler, N.J. "The concept sounds good, but I want to see how it works in execution."
Portable mortgages have caught on in Ireland and Australia, but they've never been a staple in the United States. No Hawai'i lenders are offering them, said Tom Zimmerman, president of Hawaii Home Loans.
But with mortgage rates at their lowest in 40 years in this country, Menlo Park-based E-Trade figures now is the ideal time to sell them.
E-Trade rose to prominence offering discount commissions to individual investors. Despite its push into banking, E-Trade remains a small player. The company originated $6.2 billion in mortgages last year — a sliver of the $2.5 trillion market for U.S. home loans.
E-Trade's expansion into portable loans could prod more lenders to experiment with similar products, predicted analyst Justin Hughes of Jefferies & Co.
Portable mortgages offer other advantages besides low interest rates, Gelbard said.
For instance, borrowers with portable mortgages won't have to go through lengthy credit checks or job verifications — although most closing costs will still apply. Having the financing for a purchase lined up sometimes provides an advantage in the bidding to buy a home.
Advertiser Staff Writer Deborah Adamson contributed to this report.
