Understanding Mortgage Transfers
Most home loans are designed to stay with the original borrower until the debt is fully repaid. In many cases, mortgages include a due-on-sale clause, which requires the balance to be paid in full if the property changes hands. Still, under certain circumstances — and with lender approval — a mortgage can sometimes be transferred from one borrower to another.
What Is a Mortgage Transfer?
A mortgage transfer occurs when an existing loan is reassigned to a new borrower. The new borrower assumes the responsibility for making monthly payments, typically under the same interest rate, term, and conditions as the original loan. In turn, the original borrower is usually released from further liability.
How the Process Works
When a mortgage is transferred, the terms of the loan remain intact: the length of the loan, the monthly payment amount, and the interest rate don’t change. For the person taking over, this can be an attractive option if the original mortgage carries a lower rate than what’s available in the current market. It can also help a struggling homeowner avoid foreclosure by passing the obligation to someone better positioned financially.
That said, lenders must approve the transfer, and the new borrower has to meet credit, income, and ownership requirements. Transfers often involve updating the property deed, paying transfer taxes, and completing extensive paperwork.
Are All Mortgages Transferable?
The short answer is no. Conventional mortgages, including those backed by Fannie Mae and Freddie Mac, generally do not allow transfers because of due-on-sale clauses. In contrast, certain government-backed loans — such as FHA, VA, and USDA loans — may be assumable, meaning they can be transferred to a new borrower under specific conditions.
Even when assumption is allowed, approval isn’t automatic. The lender will evaluate the financial strength of the incoming borrower and may require an appraisal of the property.
Exceptions for Conventional Loans
Although most conventional loans aren’t transferable, there are some exceptions in unique life situations. Lenders may approve a transfer when:
- A borrower passes away and the loan is reassigned to a surviving spouse or relative.
- A divorce or separation agreement grants ownership of the home to one spouse.
- A property is placed into a living trust for estate planning purposes.
In each case, the loan servicer still needs to review the arrangement before approving the transfer.
Why Transfers Can Make Sense
The main advantage of taking over someone else’s mortgage today is the interest rate. For example, if the original loan carries a 3% rate, the new borrower gets to keep that benefit even if current rates are closer to 7%. Transfers can also provide a smoother path for families passing property between generations or for resolving ownership changes after life events like divorce or death.
Steps to Transfer a Mortgage
If your loan qualifies for a transfer, the process typically includes:
- Contacting your lender to confirm eligibility.
- Hiring legal support to ensure the process meets state and federal requirements.
- Submitting financial documents so the lender can assess the new borrower.
- Maintaining payments until the transfer is officially approved.
- Paying transfer taxes if required by your local government.
Alternatives to a Transfer
If your mortgage can’t be transferred, there are other options:
- Sell the property: The new buyer applies for their own mortgage and pays off the existing one.
- Add a co-borrower: A second person can be added to the loan, though the original borrower remains liable.
- Refinance the mortgage: A refinance allows you to add or remove borrowers while adjusting the loan’s rate and terms.
- Unofficial arrangements: One person can agree to make payments on another’s loan, but this is risky and may violate the mortgage terms.
While mortgage transfers aren’t common, they can be a valuable tool in specific situations. They offer potential savings for the new borrower and relief for the original one, but they’re not guaranteed and require lender cooperation. For homeowners considering this option, speaking with your loan servicer and possibly an attorney is the best first step toward understanding what’s possible.