Sunmark FCU's Portable Mortgage Lets Homeowners Take Their Mortgage With Them When They Trade Up

SCHENECTADY, N.Y. – In a unique twist on the traditional 30-year mortgage, Sunmark FCU has introduced portable mortgages that give members the option of carrying their current mortgage to their next home and potentially saves them money. Sunmark says the product, which has been popular in Canada for many years, “is ideal for homeowners planning to relocate, trade up or downsize in a few years and who wish to hedge against rising rates.” The official roll-out date of Sunmark’s portable mortgage product was July 5, making the product only two weeks old at press time. But already the credit union said it had gotten a lot of calls from members inquiring about the unique product. In coming up with the idea for the portable mortgage, Sunmark FCU’s Marketing Manager Bill Jenkins said the credit union “was looking for ways to differentiate ourselves from area competitors including banks and credit unions. Our idea was to get a product that would put us on members’ short list and give us the opportunity to talk with them. Even if it was eventually determined that the portable mortgage wasn’t suitable for the member, it gets them thinking about their circumstances and puts us in the position to give them guidance on selecting a mortgage product.” Sunmark’s $33.5 million mortgage portfolio currently accounts for 11% of its total loan portfolio. In 2005 it projects to do $41.5 million in loans. Jenkins says Internet-based bank eTrade has a similar portable mortgage. But in conversations the credit union had with the company he said the credit union learned that although eTrade didn’t pull in a lot of portable mortgage business, the company still indirectly derived mortgage business from it “because the product was unique enough to spur business,” Sunmark was told. The CU offered this example of how the product works: a member purchases a home for $120,000 and takes a $100,000 Portable Mortgage from Sunmark for 30 years with no points at 6.95%. Ten years later, the member sells the house for $140,000 and has $80,000 remaining on its current mortgage. The member purchases another home for $200,000 and applies the $60,000 it cleared on the first house toward the purchase of the second house, leaving a mortgage requirement of $140,000. Using the portable mortgage, the member would fund the $140,000 mortgage by keeping the previous $80,000 mortgage at 6.95% with its remaining 20-year term and the CU would make a home equity loan to the member for the balance of $60,000 at the then current rate. Stressing that the portable mortgage is not suitable for all members, Jenkins said the product appeals to the member who anticipates moving eight to 10 years down the road in anticipation of a rising rate environment. “If the member is thinking of moving inside of five years, they’re better off looking at a one year ARM because the cost they’ll pay for the portable mortgage is 45 basis points higher than a 30-year fixed rate mortgage,” says Jenkins, who added that he refers to the decision process as “rate risk mediation” because the member is gambling rates will go up and by how much. “The average life of a 30-year mortgage is seven years, so we don’t see much rate risk downside,” he says. Sunmark’s portable mortgage has no minimum or maximum amount a member can have remaining on their current mortgage or how much they want to finance through the home equity loan, although Jenkins points out that “there are obviously some practical limitations because if there’s too small a balance, it may not be sensible to port it.” The mortgage can only be carried over once. Despite the relative newness of its portable mortgage product, Jenkins says most members are grasping the concept right away “although it’s going to be an education process to start with.” He says members especially pick up on the cost savings aspect of the product very quickly. When a member decides to port their mortgage, they still have to rewrite a mortgage for the new product, but instead of paying a mortgage tax on the total amount, the member only pays the tax on the balance. Then the credit union pays the closing costs, including the taxes, on the home equity portion of the loan. “New York State is a very tax happy state, so it works out to be a substantial savings for the member,” says Jenkins. -