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Can We Move the Mortgage?

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Posted On: 07/01/2015

Question:

We expect to move in the next few months, but while we can shift furniture and the dog we can’t move our mortgage. Wouldn’t it make sense to have portable mortgages?

Answer:

An Internet search suggests that a few brave lenders are making “portable” or “moveable” mortgages, so such financing is out there.

The Census Bureau estimates that nearly 36 million people moved between 2012 and 2013. That’s a lot of people – and a lot of moving – so the market for portable mortgages is potentially very large.

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According to Jeffrey Lubell, director of housing and community initiatives with Abt Associates, portable mortgages can provide substantial advantages for borrowers. Take for instance a borrower with a 30-year, fixed-rate mortgage for $300,000 at 4.5-percent interest. Lubell says: “If they have a portable mortgage and do not refinance, they will accumulate $300,000 in equity due to the repayment of their principal balance over a 30-year period, not counting any increase in home price due to appreciation. By contrast, a household that moves to a new home every 7.5 years during the same 30-year period would still owe $164,000 on that original $300,000 after 30 years, thus accumulating only $136,000 in equity through the repayment of principal – less than half the amount they would gain through a portable mortgage.”

If the use of portable mortgage is to become more widespread, then a number of questions will have to be resolved. For instance:

• What are the portability limitations? For instance, a lender would not want a loan secured by a property with insufficient value. This means that a borrower would need to have a replacement property that qualifies for financing, and downsizing could be a problem.

• What happens if the financial ability of the borrower changes? With a 30-year mortgage the borrower never has to re-qualify for financing regardless of whether income goes up or down. Will there be any kind of a financial test if a loan is moved from one property to another? If the lender can decline the move based on buyer qualifications, then is the loan really portable?

• What standard of liability applies to the loan?

In some states there are situations where mortgages are “non-recourse” loans, meaning that the borrower’s liability is limited to the value of the property. If a borrower has a $500,000 mortgage, is foreclosed, and the property only sells for $300,000, the lender cannot chase the borrower for the missing $200,000.

What happens if a borrower moves from a recourse state to a non-recourse jurisdiction? What rights would a lender lose in such a situation – and would lenders be willing to accept such a loss?

Search around for portable loans and see what lenders have to offer. Because a portable loan is a new and unusual form of financing at this point, get help from a real estate attorney to better understand how a particular movable loan works.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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