Late last year, a lot of “solutions” to fix the housing market were floated, including things like assumable and portable mortgages.
I recognize that not everyone has heard of both (or either) and that there might be some confusion between the two.
After all, they share some similarities seeing that both were discussed as ways to alleviate the affordability crisis we’ve been facing.
But they are also very different, with one targeting home buyers and the other a tool to help a seller.
So let’s compare and contrast so we all know what we’re talking about when they come up.
Assumable Mortgages Make It Easier to Buy a Home
- Let a home buyer keep your old, low-rate fixed mortgage
- Can make it easier to sell your home (more marketable)
- And easier for a home buyer to qualify to purchase your home
- Currently a solution for government loans (FHA, USDA, VA) but not Fannie/Freddie
First let’s tackle assumable mortgages. I’ve already written about them at length, but given their newfound interest, I’ll add some more details here.
An assumable mortgage allows a home buyer to acquire the home seller’s loan, with the motivation being that it features a below-market rate.
For example, if mortgage rates are currently around 6%, but the home seller got a 30-year fixed when rates were 3%, you could assume that mortgage and save a bunch of money.
You could also qualify for the mortgage more easily because of the lower rate (and monthly payment).
This would make that particular property more appealing to a prospective home buyer who either wants a deal or needs a deal to get into a home.
The important piece here is that the assumable mortgage is tied to the property, not the borrower.
As such, you still need to qualify for the assumable mortgage to ensure you are creditworthy to continue paying down the loan.
Portable Mortgages Benefit Existing Homeowners Looking to Move
- Allow you to take your mortgage with you when you sell
- Follow the borrower instead of being attached to the property
- Beneficial if mortgage rates are higher when you want to move
- But aren’t currently an option in the United States
Then we have the portable mortgage, which allows an existing homeowner to sell their home and take the mortgage with them.
In this case, the loan is attached to the borrower as opposed to the property. So it differs from the assumable mortgage in that respect.
Instead of the loan staying with the home, it is transferred to the new property when the individual moves.
Simply put, you can take your mortgage with you when you sell. And you don’t need to get another mortgage when you buy.
To that end, it’s beneficial to the seller not the buyer. Whomever buys your home will still need to take out their own, brand-new mortgage.
But you’ll get to take your existing loan to the new home, potentially saving yourself some money and the headache of getting a new loan.
One other key difference between portable and assumable mortgages is that currently no home loans in the United States are portable, while many are in fact assumable.
So the portable mortgage is simply an idea here in the U.S., while it’s a reality in countries like Canada and the U.K.
Meanwhile, assumable mortgages are actually a thing, with FHA, USDA, and VA loans all assumable.
What Are Some Similarities Between Portable and Assumable Mortgages?
- Both options extend the life of the typical home loan
- Would require investors to reprice mortgages going forward
- Wouldn’t be applied retroactively to existing mortgages so not as helpful
- And you’d likely need a larger down payment and/or second mortgage to bridge the gap
We discussed some of the differences, now let’s look at some similarities.
For one, both extend the lives of the loans. Whether you exercise the portability or assumption feature, you’ll see the mortgage last longer.
If the original loan is being assumed by the home buyer, or transferred to a new property by the seller, it’ll be held for a longer period of time.
Typically, mortgages, even 30-year fixed mortgages, only last about a decade before they are refinanced or paid off, usually via a home sale.
Both of these options would extend the life of the loan, thereby changing how investors would need to price them.
It’s kind of the reason the 30-year fixed uses the 10-year bond yield as a bellwether for pricing.
And explains why not all loans are assumable (think Fannie Mae and Freddie Mac), and why no loans are portable.
If these became options, the underlying loans would be more expensive at the outset. Or you’d have to pay a fee for the option to make your loan assumable and/or portable.
This could manifest itself as a rate increase, so instead of 6%, you’d have to pay 6.5% instead.
More importantly, existing mortgages can’t be amended, so we can’t retroactively make them assumable or portable now.
This means all those awesome 2-4% mortgages won’t magically get new features. The investors of the loans would never go for it.
Lastly, there’s also a very good likelihood that both an assumable mortgage and a portable mortgage would have a gap between the new purchase price and remaining loan amount.
As such, both would require a hefty down payment and/or second mortgage to bridge the gap.
So whether your loan was assumable or portable, you’d need to supplement the loan balance in one way or another, making the blended rate higher than it looks.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 19 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on X for hot takes.