It costs more, and is still untested here.
Sounds great. Lock your clients into some of the lowest 30-year, fixed-rate mortgage rates in 40 years through E*Trade Group's pioneer "Mortgage on the Move" portable mortgage program. If your clients move after rates have risen, they have a one-time option to bring the mortgage with them at the same rate to their new abode rather than obtaining a new mortgage at a higher rate. The cost of exercising the portability feature is strictly the third-party out-of-pocket costs, such as appraisal, title insurance, recording fees and taxes, which can vary by the amount borrowed and geographic region.
But is this an attractive deal?
The catch is that your client is paying 3/8 of 1% more for the portable mortgage than they would for E*Trade's traditional 30-year, fixed-rate mortgage. In exchange, "we're not even going to reunderwrite it as long as you're not in bankruptcy," says Robert Bernabe, head of retail lending. "There are no lender fees, application fees-none of that stuff."
The portable mortgage program, launched June 9 by the $23.2-billion financial services conglomerate based in Menlo Park, Calif., , was limited to 30-year, fixed-rate mortgages on amounts from $60,000 to $1 million. The minimum downpayment required is 20%. To qualify, clients must have had no late payments in the last 12 months. The limited-time offer is only for single-family, owner-occupied homes and new purchases.
Customers have up to 150 days from E*Trade's receipt of the notice to exercise the portability option until the close of escrow on the purchase of the new home. During this period, sale proceeds are held in escrow and payments continue on the existing loan until the purchase has closed. E*Trade acknowledges that during that gap, in which the security changes, there could be tax consequences, and urges customers to consult with their accountants.
If the client moves up to a more expensive home or maintains the same loan balance, the monthly payment and term on the portable mortgage are unchanged. If the client downsizes, E*Trade re-amortizes the new loan based on the term remaining on the original loan.
If the amount being borrowed makes the loan larger, the new second mortgage need not be with E*Trade, Bernabe says. Nevertheless, customers are apt to find it attractive to take E*Trade's second mortgage because it is priced at the then-current first mortgage rate. Typically, second mortgage rates are higher than first mortgage rates due to their added risk.
E*Trade's standard non-portable mortgage rates, based on data by HSH Associates, Butler, N.J., are in line with national averages. On July 18, for example, E*Trade reported that its standard 30-year, fixed-rate mortgage charged 5.625% plus .25 points and its "jumbo rate," which applies to loans of at least $322,700, was 5.875% with no points. That same day, HSH Associates quoted a national average 30-year, fixed-rate mortgage rate of 5.92% with .33 points.
By contrast, E*Trade's portable mortgage rate on jumbo loans of at least $322,700, which it expects will make up the bulk of its portable mortgage business, was 6.25% with no points. "If it were free, it's an absolute no-brainer," declares Jim Gilkeson, professor of finance at University of Central Florida in Orlando, of the portable mortgage. "But three-eights of a point plus extra fees is not free."
Under those circumstances, Gilkeson believes financial advisors should err in favor of conservatism. "Only go for this thing if your client is likely to use it," he suggests.