Earlier this year, Provident Credit Union member Ronald Angeldones spent months searching for a starter condominium in the high-priced housing market in the San Francisco Bay Area.
In June, when he finally found a good candidate, he knew from the information he had gathered at a home-buying seminar sponsored by Provident that he would be able to secure a low-rate mortgage loan.
But he also knew some other things. As a married man who is planning to start a family someday, Angeldones knew the condo was a first step on the way to a house-perhaps in two to three years. He also knew interest rates are expected to rise during that time. He lamented that he wouldn't be able to take the good rate he had gotten on his new mortgage with him to a new property.
Now, however, as a Provident CU member, his mortgage will be able to move whenever he does, thanks to the credit union's new "portable mortgage" program. Borrowers can transfer the terms of their existing loan and mortgage insurance to a new residence-which can significantly reduce the sting of taking out a new loan at a higher rate. And, they can port the mortgage up to two times.
Jim Ernest, Provident CU's executive vice president, said the new program-which rolled out in May-is going well. Provident funded $4-million in portable mortgage loans in June.
"We expect most first mortgage originations will come in this product," he said. "There's no upfront fee or rate difference for the portable option."
For Whom It Works
The portable mortgage works if the new residence is priced higher or lower than the original property, Ernest explained. For example, if a borrower has a $300,000 first mortgage at 4.5% on the original property, and needs a $500,000 mortgage on the new property, the original mortgage transfers intact. The borrower then can secure a second mortgage for the $200,000 difference.
"If the rate at that time is 5.5%, then they already are covered for the majority of their loan at the lower rate," he said. "And if they go through us for the second, we will fund it at the current market first mortgage rate, rather than the going rate for a second mortgage, which tends to be 100 to 150 basis points higher."
Provident CU's portable mortgage program is available on primary residences, second homes or by owners looking to re-finance. In addition, it can be used on all intermediate adjustable rate mortgage (ARM) products.
According to Ernest, the portable mortgage is new to the United States, but is common in Canada, Australia and Ireland. He said the only other company offering this product in the U.S. is E*Trade.
"It won't be long before other lenders jump in," he predicted. "At the present time, there is no secondary market for these loans, so that is holding it back. We are a portfolio lender, so we don't need a secondary buyer."
"In designing this product, we think we've addressed what the public has defined as barriers and have eliminated them," Ernest continued. "Our marketing effort is just beginning. We are sending direct mail to members and are using print media ads to reach non-members. The reaction we are getting from people is: 'It sounds too good to be true. What's the catch?' But there is no catch."
Provident CU is a $1.2 billion credit union that serves 87,000 members. Membership is open to residents of six counties in the San Francisco Bay Area, plus Sacramento County and the cities of Los Angeles, Eureka, Redding and Redwood Shores. In addition, the CU serves more than 1,600 sponsor groups.
Happy Member
Angeldones, for one, couldn't be happier. He and his wife took possession of the condo in nearby Daly City July 31, and he already has one eye on the future.
"When I was applying for a mortgage in June, I was told about this option," he said. "I have a low rate for the next five years, so I know if I buy another property in the next five years, I can use the portable mortgage to go to the other place."
The four-year member praised Provident's home-buying seminar as "very informative." He said before he attended the seminar, he was unaware of the different rates available and options such as interest-only loans or ARMs.
"The credit union was very helpful. I'm much more knowledgeable now. It was a great experience, everything went smoothly and we were able to close the deal in less than one month," he said.
"People who are buying a condominium are always thinking about buying a house someday," Angeldones added. "With this portable mortgage, I can take this great rate with me."
