Get ready for the millennial mortgage, which is coming to your neighborhood sooner than you might imagine. Your next mortgage could be:
* Completely portable and expandable. You'll be able to move it from one house to another and increase its amount as your family grows, you change jobs or you move across the country.
* Equipped with its own built-in line of credit that you can use any time by simply writing a check. You won't need to shop for a separate home equity loan anymore, nor will the credit line necessarily carry a higher rate than your main mortgage.
* Automatically refinanceable whenever interest rates decline to less than your current rate. In fact, you'll never need to refinance. All you'll need to do, assuming you have a solid payment history, is e-mail the lender and request a rate cut.
Sounds like fantasy financing? It's not. In fact, mortgages carrying two out of three of these features--the built-in credit line and the rate-reduction concepts--could be on the market before the end of this year.
Concepts such as these are rumored to be under hush-hush development inside a handful of large American mortgage lending firms. But now one of those firms--Countrywide Home Loans, the largest independent mortgage banker in the United States--says it hopes to bring the new breed of millennium mortgages to market in the not-too-distant future.
In an interview last week, Countrywide's managing director for loan origination, Gregory A. Lumsden, disclosed that the first American mortgages with built-in credit lines could be available before the end of 2000, and the first portable home mortgages could be available late next year. The rate-reduction feature already is available. Countrywide rolled out the no-refi rate reduction mortgage at the end of 1999. Known as the "eEasy" rate reduction plan, it allows borrowers to e-mail or phone requests for cuts of their rates to prevailing market levels.
The next step will be the introduction of the home mortgage with a built-in credit line. It will work like this: You qualify for a $300,000 mortgage, but you have no immediate need for that much money. All you need is $220,000, but you wouldn't mind having a convenient way to instantly raise low-cost cash when you need to buy a car, fund a child's college expenses, or pay unexpected medical or legal bills. Under its forthcoming plan, Countrywide would provide the $220,000 (or whatever you need for the house) in the form of a regular mortgage, and include a flexible credit line that can expand up to another $80,000 on top of that. Payments on the $220,000 would be at prevailing fixed interest rates; payments on any additional amounts you pull out via the credit line would either be at a floating rate, or at the same fixed rate as your main mortgage.
Lumsden says the goal is to weld the two types of credit into a single product--"all part of the same deal"--with identical interest rates on both the credit line and main mortgage. That in itself would be unprecedented, since equity credit lines typically are second mortgages, involve higher risk to the lender, and come with rates that are 1 percentage point to 2 percentage points higher than first mortgages. Rather than a first mortgage at 8 percent and a second mortgage at 9 percent or 10 percent, the new loan would carry one rate at a prevailing market level--perhaps 8 percent on everything you borrow, up to a predetermined limit.
The ultimate new-millennium mortgage, though, will combine the rate-reduction and credit line features with a concept that's so radical that Countrywide thinks it will transform the mortgage marketplace: portability.
The portable mortgage will go with you when you sell and move. It will grow if you need it to. It will lower its rate when you make a request, but never increase it. It may save you thousands of dollars in closing costs over a period of years.
Theoretically, you won't need a new mortgage--or a new mortgage lender--once you have a portable loan that travels with you and eliminates the need to ever refinance. That's precisely why Countrywide is devoting substantial effort to its development.
Portability carries some inherent legal and financing complications. The mortgage documents will have to allow substitutions of multiple properties as collateral for a succession of liens of different amounts. Moreover, since most mortgages are packaged into bonds and sold to investors, the bonds themselves will have to be altered structurally to permit this.
But Lumsden is confident that portability is just over the horizon. And combined with the rate-reduction and built-in credit line concepts, "It'll be hot."