It’s a tough time to buy a home.
Mortgage rates are north of 7%, their highest level in 25 years.
But what if you could get a mortgage at 3% instead?
Or even 2%?
Today, I’ll show you new ways that clever buyers are doing exactly that.
Solution #1: Port Your Mortgage
Were you one of the lucky home buyers who locked in a low-rate mortgage a few years ago? If so, good for you.
But if you’d like to (or need to) move, this could put you in a tough spot. The prospect of giving up your low-rate mortgage might be hard to swallow. It might even be financially impossible.
But a potential solution exists. It’s called mortgage porting.
Mortgage porting means transferring the terms of your existing mortgage — including its low interest rate and payment schedule — to a new home.
To do so, first you’ll need to reapply for your mortgage, just like you did when you first got it. This ensures that you’re still eligible.
Then, as long as you have a fixed-rate mortgage, and the price of the new home is at least as much as your current home loan, mortgage porting is possible.
(By the way, if the new home is far more expensive than the old one, lenders might offer you what’s called a “blend and extend” mortgage, where the rate they offer you is a mixture of your old rate and current rates.)
To learn more and see if you’re eligible, the first step is talking to the team that provided your existing mortgage. They can confirm whether your mortgage is portable and explain any fees you’d be subject to.
Then, once you have all the information, you’ll be able to figure out whether porting your mortgage makes financial sense!
Solution #2: Assumable Mortgages
The second solution to snag a low-rate mortgage is called an assumable mortgage.
Assumable mortgages are a type of home loan where the seller can transfer his mortgage — and his low interest rate — to the buyer.
So if the seller locked in a 2% mortgage when rates were at historic lows, he can transfer that 2% mortgage to the new buyer.
For buyers, this could lower monthly payments by about half. And meanwhile, it could help sellers find many more potential buyers.
One company offering assumable mortgages is a fast-growing startup called Roam.
Essentially, Roam connects sellers who locked in low mortgage rates with prospective buyers.
Roam aims to reduce friction for its customers. For example, it does all the work to find available properties with assumable loans, deals with the paperwork, and manages the entire process for buyers and sellers.
In exchange for its services, it takes a one percent fee from the buyer’s closing costs.
Buyers are already taking advantage of Roam.
For example, Jessica Pardinas and her family bought a four-bedroom home in Bowie, Maryland after assuming a Veterans United loan with a rate of just over 3%. She estimates the lower rate will save her about $10,000 a year. “It was a very welcome surprise,” she says.
Other buyers could save even more. If you’re paying 2% instead of 7.5% on a $500,000 mortgage, that would save you more than $1,650 a month.
With more than 60% of U.S. homeowners holding a mortgage with an interest rate below 4%, the potential market for assumable loans is very large.
In fact, such loans are already becoming popular. As Chris Birk, vice president at VA lender Veterans United Home Loans said, “We’re seeing more and more home listings referencing assumable loans and more interest from prospective buyers.”
As The New York Times reported last month, the number of assumptions completed is growing quickly: “More than 6,000 were completed in 2023, up 139 percent from 2022. This year, there were already 3,896 assumptions completed.”
Of course, nothing is perfect. Here are a few of the main challenges with Roam, and more generally, with assumable mortgages:
- Only focused on FHA and VA loans. Many home buyers qualify for FHA loans. But for the most part, only active members of the military or veterans can qualify for a VA loan.
- Mortgage lenders might drag their feet. According to The Wall Street Journal, there's not much profit in assumable loans for lenders. As a result, they may be slow to process paperwork.
- Roam isn’t yet nationwide. According to The New York Times, Roam is currently in 18 cities across seven states. It expects to expand nationwide over time.
The Danish Twist
Denmark is known for many things — Vikings, Legos, Carlsberg beer.
But it’s also known for something more esoteric: homeowners can trade their own mortgage like a stock or bond.
In fact, when they trade their existing mortgage with a low interest rate for a new mortgage with a higher rate, they can earn a profit. That can put significant cash in their pocket, which makes it far easier for them to move.
Implementing something similar in the U.S. would require big changes to our mortgage market. Congress might even need to step in.
But big changes in this market have happened before. For example, during the Financial Crisis of 2007-2008, the government created game-changing programs that helped homeowners refinance their underwater mortgages.
Bottom line: in the future, it’s possible the U.S. mortgage market might become more like Denmark’s. But you shouldn’t hold your breath.
In the meantime, if you’re looking to snag a low interest rate, check out mortgage porting, and explore assumable mortgages!
Happy Investing
Best Regards,
Founder
Crowdability.com
