Portable Mortgages in the U.S.: Would Taking Your 3% Rate With You Help… or Hurt Housing Affordability?
I’m sure you’ve heard about this idea of being able to take your current interest rate for your mortgage with you to a new house. So, this would motivate home owners with super low rates from the Covid period to buy a new house, but has hesitated due to the current rates.
The interest portability peaked my interest, because I am one of the home owners that bought in 2021 with a super low rate. I am not moving anytime soon. Not entirely due to the low interest rate, but also other factors. The lower interest rate does influence us staying put though, because the other factors are tied into the lower interest rate. I know super vague.
I am going to show an article that talks about Why Portable Mortgages Won’t Work in The U.S. and How They Can Make Housing Even Less Affordable.
The idea behind this was to help generate more inventory into the market, which can help with demand. You know, more homes to choose from, chances are prices won’t rise in a crazy frenzy like they did in 2020-mid 2022. Inventory levels were super low back then. Isn’t it crazy to think that almost 6 years has past since Covid began.
In the article I shared above, the writer believes that renters and mortgage free buyers will get the short end of the deal, because the portable home owners will have more attractive financing and renters will have the current rates to tend with. I’m going to share a direct quote from thew article I referenced above written by Jake Krimmel.
“As a result, the broader housing market impacts of portable mortgages point to higher, not lower, home prices. Anyone able to “port” a 3% mortgage into a new purchase would effectively be bidding with cheap financing in a 6% world. That added purchasing power would push prices up, while renters and mortgage-free owners would still face today’s higher rates—only now with even higher list prices. The new dividing line would not be purely generational, but rather who already holds the “golden ticket” of a COVID-19 pandemic-era mortgage versus who doesn’t. A buyer pool fractured by financing conditions would widen an already stark divide among younger households, with current owners continuing to gain while renters fall further behind.”
I could not write that any better, so I just wanted to share it and make sure he had the credit given for writing it. The part where he says anyone who has the 3% rate, will be effectively bidding with cheap financing in a 6% world. Basically they would have an advantage, and that advantage would cause prices to rise. That got my brain lit up trying to think about that scenario. Obviously, the 3% owner would win out on the lower rate, but would it be any different than if the buyer had a huge down payment, which would lower their payment? Do you see what I’m saying? It will cost the new buyer more in interest, just like having PMI when you have less than 20% down will cause a higher payment. If I’m a seller and I have two offers come in with one at the current rate and one at 3%, would that cause me to pick one over the other? It will cost the 6% buyer more, than the 3% buyer so that could be less attractive for that buyer, but the seller would then be dealing with a buyer who may have to sell their house first, before they could close on a new one. Of course, with the 3% difference it could give the portable buyer more wiggle room to offer better terms top make it more attractive to the seller to choose their offer.
Now in terms of bringing more homes into the market, will it really do that? If you have 100 3% buyers with homes on the market and the reason they are selling is for the portability aspect, that means they will also be buying 100 homes.
What do you think? If your answer is that you disagree with me, that is totally cool. Just tell me why you’re thinking that way. This is how we mastermind to figure out a “better” way.
Another point mentioned is that other countries do it, but their system is different than ours. That is totally valid and we can’t compare apples to oranges.
So go check out Why Portable Mortgages Won’t Work in The U.S. and How They Can Make Housing Even Less Affordable. and come back and leave a comment.
