Remaining mortgage balances can be annoying to homeowners who want to move to a new house or acquire a new home loan. There are several different ways for these borrowers to deal with the remaining payments that must be made on an old mortgage. These payments pay down the rest of the principal, the core amount of the loan that must be returned to the lender, plus any remaining interest. While lenders often charge fees for early repayment and do not allow homeowners to carry over an old balance, borrowers can still work out mortgage arrangements to take care of the problem.
Mortgage Payment Process
In a normal mortgage repayment, the homeowner contacts the lender regarding paying off the mortgage in full. The lender prepares a statement that shows how much of the mortgage is remaining and the total amount, principal and interest, that must be paid immediately to close the mortgage account. Otherwise, the borrower continues to make the required monthly payments, which are carefully calculated to pay off the mortgage fully at the last month. Homeowners who want to avoid either of these options must find another way to pay off or get rid of the remaining mortgage balance.
Portable mortgages are a type of mortgage that can be carried from one home to another. These allow homeowners to combine an old mortgage payment and old mortgage terms with a new loan, which can result in savings. At one point the investment company E*Trade offered these portable mortgages, but after several years they were discontinued. There is now no way for a borrower in the United States to carry over a mortgage amount in this way.
Alternative Options: Refinancing
Many borrowers who want to get rid of this remaining mortgage amount choose to refinance and pay off the remaining debt through an entirely new loan. This has its share of advantages: While a homeowner cannot continue the old terms of the first mortgage as in a portable mortgage, refinancing may lead to even better rates if the loan market has changed for the better since the first mortgage. The refinance, however, does not remove a borrower's liability for the first house if the borrower wants to make a second purchase using the leftover refinance funds.
Assuming a Mortgage
Mortgage assumption is another common option for borrowers who want to buy a new house but cannot carry over remaining mortgage debt. In this case, the buyer agrees to assume the mortgage for the house so the borrower can safely leave the debt behind--at a reduced purchase price--and move on to a new property. The lender must agree to a mortgage assumption, and some lenders create clauses that prevent it.
- Mtg Professor: Are Mortgage Assumptions a Good Deal?; July 2010
- Mtg Professor: Is Portability a Useful Option; June 2009
- Federal Reserve: Adjustable Rate Mortgages
- Consumer Financial Protection Bureau. "What Is Private Mortgage Insurance?" Accessed Oct. 31, 2020.
- Internal Revenue Service. "Publication 936 (2019), Home Mortgage Insurance Deduction." Accessed Oct. 31, 2020.
Tyler Lacoma has worked as a writer and editor for several years after graduating from George Fox University with a degree in business management and writing/literature. He works on business and technology topics for clients such as Obsessable, EBSCO, Drop.io, The TAC Group, Anaxos, Dynamic Page Solutions and others, specializing in ecology, marketing and modern trends.