Housing affordability remains a central focus in Washington, DC, and Nashville has felt the crisis firsthand. Following significant public and industry pushback on the proposed 50-year mortgage, the administration has shifted its focus to exploring portable and assumable mortgage options. A portable mortgage would allow a homeowner to transfer their existing loan – and its lower interest rate- to a new property, potentially easing the “lock-in” effect that keeps many homeowners from selling. More than half of US homeowners currently hold rates below 4%, creating a major barrier to mobility.
However, portability presents significant challenges. While versions of this model exist in Canada and the UK, their mortgage systems operate on short-term fixed periods – typically 2-5 years. The US is one of the few countries with a fully amortizing 30-year fixed-rate mortgage, made possible through securitization, which ties each mortgage to a specific property and then packages these loans for sale through the Mortgage-Backed Securities market. A portable model would break that structure, increasing risk, adding cost, and requiring a fundamental overhaul of the Mortgage-Backed Securities market.
Another practical concern is that when a homeowner “moves up” in price, they are faced with an equity hurdle that requires them to secure cash or a second lien to cover the difference between the new home’s price and the existing loan balance. Because second liens carry higher rates, any savings from porting a low-rate mortgage could be diminished or eliminated.
The use of assumable mortgages, which are currently available in the US, illustrates the equity hurdle perfectly. An assumable mortgage allows a homebuyer to “take over” the existing mortgage and cover any equity gap. Although FHA and VA loans are typically assumable, actual usage of this tool is minimal. In 2021, when rates were at historic lows, FHA and VA loans represented roughly 29% of the 13 million mortgages originated. Yet, despite millions of potentially assumable loans in the market, only about 6,400 assumptions were completed in 2023. (Eisen, Friedman WSJ 2024)
Concepts like portable and assumable mortgages reflect a growing urgency to address housing affordability. Ultimately, solving the affordability crisis will require a coordinated blend of tax and policy innovation, streamlined lending practices, and industry collaboration – especially in fast-growing markets like Nashville.
Christi Wedig is a senior loan originator at CMG Home Loans.
