Unlocking Value From Low-Rate Mortgages

Homeowners replacing ~3% mortgages with new loans near 7% may tap a low-rate loan's value when selling, creating funds that can help finance a move.
Through defeasance, borrowers pledge US government securities to a trust or escrow agent, which then makes scheduled principal and interest payments on the mortgage.
In the example, a $500K ~3% mortgage had a $444.5K remaining balance after 5 yr, while matching Treasury collateral then cost $360.6K.
For portfolio lenders, a defeased mortgage still stays at amortized cost, while US government securities backing can also qualify for lower regulatory capital treatment.
A lender recently closed the first transaction in a new residential program, signaling defeasance can be a real option that may ease mortgage lock-in.