A portable mortgage allows you to move your mortgage from your first home when you buy another home. Rather than repay your existing mortgage when you sell, and then take out a new mortgage, the portable mortgage allows you to transfer your initial mortgage to the new home.
There are two benefits to a portable mortgage. One is that you don't have to pay all the closing costs for a new mortgage.
The other benefit is even more attractive: your interest rate stays the same. Given that, as of this writing, mortgage rates are relatively low, and thus could rise significantly, that's a very sweet deal.
E-Trade Mortgage was the first lender to offer portable mortgages back in 2003. Their portable mortgage program consists of a 30 year fixed-rate mortgage. They also charge 3/8% more for the portability option. E-Trade also will only issue portable mortgages for single family homes which serve as the borrower's primary residence. The portability option can only be used once. And borrowers must have absolutely clean credit records.
Since 2003, some other lenders have added portable mortgages to their stable of options.
Is a portable mortgage right for you? It depends upon how long you plan on staying in your first home before buying your next home. This is because of the additional interest you're paying for the portability option.
If you expect to buy your next home in five or six years, that small amount of additional interest will serve as a valuable insurance policy against rising rates. If you plan on moving into another home earlier than five or six years, the interest premium may cost you more than what you would save in having no closing costs.
If you expect that you'll be moving to a less expensive home, the portable mortgage option may not be as useful for you, as your mortgage payment will be smaller. However, E-Trade will adjust your payment if the new mortgage amount is smaller by $10,000 or more.
On the other hand, if you expect that your next home will be much more expensive, you're probably better off with a traditional mortgage.
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