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.

Gilkeson raises another issue: "If your client is thinking of moving in the not-too-distant future, why are you not looking at ARMs (Adjustable Rate Mortgages)? People are scared of ARMs, but most ARMs have a long lock-in period now. You can lock in five to seven years."

Indeed, HSH data indicate that if a client were to lock into an ARM that had a rate fixed for seven years and then subject to change annually after that, the rate on July 18 would be 4.91% and .29 points. That is significantly less than the 6.25% jumbo rate that E*Trade charged for its portable mortgage. Gilkeson notes that your client could pocket the savings-just in case rates happen to rise.

However, Bernabe counters that adjustable-rate mortgages offer no options. "A lot of consumers will take a 5/1 ARM (a mortgage that has a rate that is fixed for five years and subject to change annually after that). The problem is after five years, you're going to reprice to market, but there's really not a choice. This lets you lock in to historically low rates and bring them to the next home. If rates go to 8.50%, look at the payment difference. It's over $1,000 on a $500,000 home."

Much has been made of the fact that the United States has no secondary market in portable mortgages, creating an added layer of lender risk for the product. After all, many of the nation's thrifts got squeezed in the 1970s and 1980s due to portfolio mismatches of long-term mortgages at 4% to 5% against double-digit deposit rates.

"Somebody's got to take the lead," says Bernabe, who maintains there has been much interest in creating a secondary market for portable mortgages." We've talked to Fannie Mae, but Fannie Mae won't tell you on the record that they're talking to us." E*Trade sells most of its mortgages to the secondary market.

John Burns, president of John Burns Real Estate Consulting Inc. in Irvine, Calif., says the idea of a portable mortgage in the United States might have originated with him. In the February issue of his regular monthly e-mails to the homebuilding industry, he asked, "Wouldn't it be great if somebody came up with this product?" So many have mortgages at less than 7%, Burns says, that rising rates above that level would be a major enticement for people not to move. E*Trade, Burns says, learned about his remark and ran with its new product.

Portable mortgages already exist in other countries, including Canada, Australia and England. But, at least in Canada, portable mortgages, which became popular in the mid-1980s are quite different from E*Trade's.

BMO Bank of Montreal, explains Gail Kassie, director of that bank's mortgages and home financing products, offers several features with its mortgages at no extra charge, including portability. But Canadian mortgages traditionally have much shorter terms than in the United States. "The most popular term (at BMO Bank of Montreal) is five years," she says.

"People like to go shorter because the shorter rates are usually lower," says Kassie. Say they select a six-month term. They could lock in a rate for six months and then after six months, select another term by signing a renewal agreement. Although mortgage terms can run as long as 25 years, the longer terms are not popular.

Meanwhile, amortization in Canada typically is over longer periods than in the United States. A five-year, fixed-rate mortgage at BMO Bank of Montreal is most commonly amortized over 25 years, she says. This creates lower payments, but means the consumer is not paying off principal as quickly as he or she would if amortized over five years. On July 18, BMO Bank of Montreal had posted rates of 5.85% for a six-month term; 6.20% for a five-year term and 7.80% for a 10-year term. These rates typically are discounted based on factors such as competitiveness and customer relationship, Kassie says. "The average consumer is only paying 5.20%."

If the customer exercises the portability feature by moving to another home, the customer gets a new rate blended with the existing rate. The only fees that are paid are legal fees to transfer the mortgage.

However, if a contract is broken, the customer must pay "breakage fees." If they refinance and leave the bank, for example, a breakage fee might be the greater of three months' interest at the rate of the contract or the interest rate differential-comparing their current rate with the market rate for the term remaining.

Kassie says that although the overwhelming majority of the bank's loans have the portability feature, "maybe 25% actually act on it at some point and use the feature."

Burns says that with a portability feature, at least if rates go up, U.S. lenders will know that people won't be prepaying. "My understanding is this has created a lot of internal debate at big major mortgage companies as to whether they should get into it," he says.

Meanwhile, Gilkeson warns that advisors should be particularly careful to read their clients' mortgage contracts. "There's probably a lot of fine print in this," he says. "What happens if, four years down the road, E*Trade is purchased by Merrill Lynch?"

Beware of fine print clauses that say, "We reserve the right with six months notice to cancel this program," he suggests. "I'd sure hate to do this for five years and find out there's an asterisk somewhere." Although annoying rate increases and contract changes have become commonplace in the wake of credit card bank mergers, for example, it's quite another matter when you're talking about a $400,000 mortgage. Bernabe says that E*Trade's portable mortgage contract has no such clause. If E*Trade merges, the mortgage contract will remain intact. However, he agrees, "That's an excellent point."