E-Trade offers mortgages that move with borrowers
By Associated Press, 6/10/2003
boston.com
SAN FRANCISCO -- Online financial services rebel E-Trade Group Inc. tweaked the mortgage market yesterday, offering fixed-rate loans that borrowers can take with them as they change addresses.
The portable mortgages are designed to appeal to people who want to lock in their monthly payments at today's low interest rates, even if they sell their home and buy a new one before the end of the typical loan's 30-year duration.
Getting such a mortgage comes at a price -- the interest rate is slightly higher than on a conventional mortgage. E-Trade offered 30-year portable mortgages at 5.875 percent yesterday, more than the conventional rate of 5.5 percent.
That premium might be worthwhile if, as some analysts expect, long-term interest rates climb during the next few years.
Typically, a homeowner who sells one home to buy another obtains an entirely new loan to finance the next purchase.
In most instances, the buyer obtains another 30-year loan at a new interest rate, incurring the hefty interest payments usually required during the first few years of a mortgage.
Under E-Trade's program, the 30-year mortgage travels with borrowers from home to home, with the interest rate remaining at the original price. The mortgage can only be transferred once, E-Trade spokeswoman Connie Dotson said late yesterday, reversing an earlier statement that there were no limits on the number of times the loan could be moved.
''The concept sounds good, but I want to see how it works in execution,'' said Paul Havemann, a vice president of HSH Associates, a mortgage research firm in Butler, N.J.
Portable mortgages have caught on in Ireland and Australia, but never been a staple in the United States. But with mortgage rates currently at their lowest in 40 years in this country, Menlo Park-based E-Trade figures now is the ideal time to sell them.
''Our phones are ringing off the hooks,'' Arlen Gelbard, E-Trade's chief banking officer, said yesterday. ''We have always been focused on developing products that give our customers different alternatives like this one does.''
E-Trade rose to prominence during the late 1990s with an iconoclastic approach that offered discount commissions to individual investors who bought and sold stocks on the Internet.
Despite its push into banking, E-Trade remains a small player. The company originated $6.2 billion in mortgages last year -- a sliver of the $2.5 trillion market for US home loans. E-Trade's expansion into portable loans could prod more lenders to experiment with similar products, predicted analyst Justin Hughes of Jefferies & Co. |
