9 ms·

Wouldn't it be nice if mortgages could be tied to the borrower instead of the property? Imagine that as a borrower, you could keep your existing mortgage terms

Wouldn't it be nice if mortgages could be tied to the borrower instead of the property? Imagine that as a borrower, you could keep your existing mortgage terms when moving to new houses (assuming similar property values, etc.) and if you needed to buy a more expensive home then you'd have to get an additional loan to cover the difference or pay cash, etc.

albertgoeswoof 3y ago
You can do this in UK, it's called Porting a mortgage. Typical interest rate fixes are much shorter in the UK though (2, 5, 3, 10 year fixes are the most common)
- benjaminwootton 3y ago
  Our approach sounds much more sane than the US. Who wants to fix at todays rate for 30 years with no ability to the port the terms to a new property?
  - balderdash 3y ago
    Except that fixed term mortgages have the option to prepay - so people in the US signing 30yr fixed mortgages are locking in a fixed ceiling for the duration of their mortgage, and if mortgage rates come down in a couple of years, they just refinance the whole thing, but they pay a spread over an ARM for this option. For some people it’s more prudent to pay a few hundred extra basis points over the next several years, than risk their mortgage resetting at a higher rate, and having the option of refinancing at a lower rate…they’re purchasing insurance…
  - pertymcpert 3y ago
    Nah, it's better in the US. 30 year fixed being the norm means that you don't need to worry about rate hikes. The advantage of shorter fixed rate periods are usually lower rates, but 30 years are already low. The peace of mind is valuable.
    - snordgren 3y ago
      Those 30 year mortgages also makes the economy less sensitive to interest rate raises, allowing you to run a higher interest rate than a comparable country where 30-year mortgages is not the norm. This makes the dollar stronger.
  - deleted 3y ago
    [deleted]
  - aidenn0 3y ago
    There's no prepay penalty in the US. I got a fixed rate at 5% on my current house and currently pay 3% due to having taken out new loans to pay off the old one (a.k.a refinancing). A 30 year rate fix with no prepay penalty is incredibly borrower friendly because you can (nearly) always take advantage of lower interest rates, but don't have to worry about your rate ever going up.
    - anticensor 3y ago
      Is it illegal to have prepay penalty, or not done out of tradition?
      - aidenn0 3y ago
        I honestly don't know. The way many restrictions work in the US though is that legally is on a state-by-state basis, but the main driver is whether or not Fannie Mae (and similar federal entities) will underwrite the loan. That's where the 30 year maximum term, and 80% loan-to-value limits come from
      - horsawlarway 3y ago
        American mortgages are also designed to pay out disproportionately more interest up front, and much of the cost of the loan is also paid directly at closing as up front fees. Ex: closing costs for new mortgage in my area average around 5k.
  - horsawlarway 3y ago
    Maybe I'm misunderstanding, but I don't really see the problem with the US system. I can opt into a fixed 30 year mortgage, which I can exit at basically any point through a refinance or sale event. I can't port my terms, but my rate is also fixed for up to 30 years unless I exit the arrangement. That's a safer deal for me than having 5 years of fixed interest and then being completely at the mercy of market rates. At least for me - I'm fixed at 2.25% on a 20 year mortgage. Which was only possible because I exited a mortgage through a refinance to bring my rate from 4.4% to 2.25%. Right now if I refinanced, my rate would be much higher - so I will defer borrowing lots of money again. Basically - The US system only feels weird when we experience particularly strong movement in interest rates. If the rate stabilizes at 7%, no one is going to bat an eye at getting a loan at 7%. It's only during this window where 18 months ago I could get 2.25% and now it's 7% that feels off. And even now - it's not off, there are just lots of folks in a position where their current mortgage is now a steal, and selling sucks since they lose the benefits.
bgirard 3y ago
I was told that my Canadian mortgage could be 'ported' like this, although I haven't had to look into it. From my experience Canadian mortgages have less fees up front at closing compared to US mortgages but typically they sway you towards a locked 3 to 5 year term where you might face penalties for breaking the mortgage. The 'port' options can be used in this situation to avoid the fees.
- oh_sigh 3y ago
  Aren't long term fixed interest mortgages basically unheard of in Canada though? Having portability with your mortgage would only really benefit people with fixed interest rates lower than the prevailing interest rate.
  - bgirard 3y ago
    Yes, but when you're signing a mortgage with potential prepayment penalties and you're afraid that you might not live there for say 5 years, your lender will use the 'port' option to reassure you. I suspect that's the main feature. Not to lock-in a 30-year rate and have it follow you.
lisplist 3y ago
Lol this would make home price inflation even worse. Great if you have a mortgage, terrible for FTHB. Kinda like Prop 13 in California.
eduction 3y ago
You could accomplish this in a roundabout way outside the mortgage system: -You rent out your home and retain and continue to service your low interest rate mortgage. -You relocate to new city and rent from someone else with a low interest rate mortgage (and thus, presumably, attractive rental terms). I predict this will become an increasingly common solution (for the subset of homeowners who need to/want to relocate) and that some sort of new middleman/platform will emerge to serve this market (think longer term residential leases, better vetting of renters, etc)
speby 3y ago
This can 'sort of' be done thru loan assumption. But it is a provision that only some loans have. And it isn't tied to the borrower but to the asset. Example would be you were selling your house and a buyer wanted to 'assume' your mortgage. They could actually do that where they take over the remaining principal, a loan assumption provision would allow that. Granted, the buyer would still need to come up with the cash for the rest of the price of the home (selling price - remaining loan balance) and to do that, the buyer would either need to bring cash to the table or get a 2nd loan to make up for that difference.

albertgoeswoof 3y ago

You can do this in UK, it's called Porting a mortgage. Typical interest rate fixes are much shorter in the UK though (2, 5, 3, 10 year fixes are the most common)

benjaminwootton 3y ago
Our approach sounds much more sane than the US. Who wants to fix at todays rate for 30 years with no ability to the port the terms to a new property?
- balderdash 3y ago
  Except that fixed term mortgages have the option to prepay - so people in the US signing 30yr fixed mortgages are locking in a fixed ceiling for the duration of their mortgage, and if mortgage rates come down in a couple of years, they just refinance the whole thing, but they pay a spread over an ARM for this option. For some people it’s more prudent to pay a few hundred extra basis points over the next several years, than risk their mortgage resetting at a higher rate, and having the option of refinancing at a lower rate…they’re purchasing insurance…
- pertymcpert 3y ago
  Nah, it's better in the US. 30 year fixed being the norm means that you don't need to worry about rate hikes. The advantage of shorter fixed rate periods are usually lower rates, but 30 years are already low. The peace of mind is valuable.
  - snordgren 3y ago
    Those 30 year mortgages also makes the economy less sensitive to interest rate raises, allowing you to run a higher interest rate than a comparable country where 30-year mortgages is not the norm. This makes the dollar stronger.
- deleted 3y ago
  [deleted]
- aidenn0 3y ago
  There's no prepay penalty in the US. I got a fixed rate at 5% on my current house and currently pay 3% due to having taken out new loans to pay off the old one (a.k.a refinancing). A 30 year rate fix with no prepay penalty is incredibly borrower friendly because you can (nearly) always take advantage of lower interest rates, but don't have to worry about your rate ever going up.
  - anticensor 3y ago
    Is it illegal to have prepay penalty, or not done out of tradition?
    - aidenn0 3y ago
      I honestly don't know. The way many restrictions work in the US though is that legally is on a state-by-state basis, but the main driver is whether or not Fannie Mae (and similar federal entities) will underwrite the loan. That's where the 30 year maximum term, and 80% loan-to-value limits come from
    - horsawlarway 3y ago
      American mortgages are also designed to pay out disproportionately more interest up front, and much of the cost of the loan is also paid directly at closing as up front fees. Ex: closing costs for new mortgage in my area average around 5k.
- horsawlarway 3y ago
  Maybe I'm misunderstanding, but I don't really see the problem with the US system. I can opt into a fixed 30 year mortgage, which I can exit at basically any point through a refinance or sale event. I can't port my terms, but my rate is also fixed for up to 30 years unless I exit the arrangement. That's a safer deal for me than having 5 years of fixed interest and then being completely at the mercy of market rates. At least for me - I'm fixed at 2.25% on a 20 year mortgage. Which was only possible because I exited a mortgage through a refinance to bring my rate from 4.4% to 2.25%. Right now if I refinanced, my rate would be much higher - so I will defer borrowing lots of money again. Basically - The US system only feels weird when we experience particularly strong movement in interest rates. If the rate stabilizes at 7%, no one is going to bat an eye at getting a loan at 7%. It's only during this window where 18 months ago I could get 2.25% and now it's 7% that feels off. And even now - it's not off, there are just lots of folks in a position where their current mortgage is now a steal, and selling sucks since they lose the benefits.

bgirard 3y ago

I was told that my Canadian mortgage could be 'ported' like this, although I haven't had to look into it. From my experience Canadian mortgages have less fees up front at closing compared to US mortgages but typically they sway you towards a locked 3 to 5 year term where you might face penalties for breaking the mortgage. The 'port' options can be used in this situation to avoid the fees.

oh_sigh 3y ago
Aren't long term fixed interest mortgages basically unheard of in Canada though? Having portability with your mortgage would only really benefit people with fixed interest rates lower than the prevailing interest rate.
- bgirard 3y ago
  Yes, but when you're signing a mortgage with potential prepayment penalties and you're afraid that you might not live there for say 5 years, your lender will use the 'port' option to reassure you. I suspect that's the main feature. Not to lock-in a 30-year rate and have it follow you.

lisplist 3y ago

Lol this would make home price inflation even worse. Great if you have a mortgage, terrible for FTHB. Kinda like Prop 13 in California.

eduction 3y ago

You could accomplish this in a roundabout way outside the mortgage system: -You rent out your home and retain and continue to service your low interest rate mortgage. -You relocate to new city and rent from someone else with a low interest rate mortgage (and thus, presumably, attractive rental terms). I predict this will become an increasingly common solution (for the subset of homeowners who need to/want to relocate) and that some sort of new middleman/platform will emerge to serve this market (think longer term residential leases, better vetting of renters, etc)

speby 3y ago

This can 'sort of' be done thru loan assumption. But it is a provision that only some loans have. And it isn't tied to the borrower but to the asset. Example would be you were selling your house and a buyer wanted to 'assume' your mortgage. They could actually do that where they take over the remaining principal, a loan assumption provision would allow that. Granted, the buyer would still need to come up with the cash for the rest of the price of the home (selling price - remaining loan balance) and to do that, the buyer would either need to bring cash to the table or get a 2nd loan to make up for that difference.