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."

First « 1 2 3 » Next