Moving Your Mortgage: A Guide To Smooth Transitioning

Transferring a mortgage to another person is possible but difficult. This process is known as porting and involves taking an existing mortgage to a new home. It is important to note that not all lenders allow this, and there are time constraints and other conditions that must be met. If you are transferring to a more expensive property, for example, you will need to be reassessed by the lender. An assumable loan is another option, but these are not widely available, and the buyer must meet the lender's qualifications.

Transferring a Mortgage

Transferring a mortgage to someone else

There are several reasons why someone might want to transfer a mortgage. For example, a couple may wish to add both names to a mortgage after getting married and moving in together. On the other hand, a couple with a joint mortgage may separate, and one person may wish to take full ownership of the property. Another common reason for transferring a mortgage is inheritance tax planning, where a parent adds a child to their property deeds.

To transfer a mortgage, you will need to meet the lender's criteria and affordability assessment. The person taking on the mortgage will need to satisfy the lender's eligibility and affordability assessments, which may include a credit check, and providing documentation such as income and employment information. You will also need to engage a solicitor to handle the legal side of things, and a conveyancer to manage the paperwork.

It is important to note that not all mortgages can be transferred to another person. Most mortgages are not transferable, and lenders are not usually incentivised to approve transfers as they lose out on interest payments. However, lenders may make exceptions for transfers between family members, and it is worth speaking to your lender to understand their specific requirements.

Porting your mortgage to a new home

To port your mortgage, you must first check your eligibility by reviewing your mortgage agreement to ensure it is portable. Next, you must notify your mortgage provider of your intention to port your mortgage and ask for details about the process, including any required documentation and associated fees. You should also ensure that the new property meets the lender's criteria and is valued appropriately.

If you are moving to a more expensive home, you may need to borrow more, which could result in a blended interest rate. This "top-up" is sometimes arranged as a separate mortgage deal, which may involve a different and potentially higher interest rate and an arrangement fee. On the other hand, if you are moving to a cheaper home, you may need to repay a portion of your mortgage. In this case, you should be aware of any early repayment charges.

Porting a mortgage can be a complex process, so it is important to work closely with your lender and seek professional advice to navigate the transition smoothly.

Unofficial transfers and their risks

Unofficial mortgage transfers, also known as unofficial mortgage assignments, occur when the original borrower continues to pay the loan with funds from a new party without notifying the lender. In this scenario, the original borrower remains liable for the debt and must continue making payments to the lender. This option is not recommended as it carries legal and financial risks.

One significant risk is that the original borrower has little recourse if the new party stops making payments. The original borrower's credit score could be negatively impacted, and they may be pursued by lenders for late payments. Additionally, if the property is sold for less than its value, the original borrower could be held responsible for the deficiency.

Another risk arises if the original borrower moves out of the property. This could breach the terms of the mortgage, exposing the borrower to potential legal consequences.

Unofficial transfers may be considered in exceptional circumstances, such as divorce, death, or family transfers. However, it is crucial to understand the associated risks and explore alternative options, such as working directly with the lender to find a mutually beneficial solution.

Assumable loans

An assumable mortgage allows a buyer to take over the seller's existing mortgage, including the principal balance, interest rate, repayment period, and other contractual terms. This can be advantageous for buyers who can benefit from lower interest rates if the seller signed up for a fixed-rate mortgage when rates were lower. Additionally, buyers can skip the rigorous process of obtaining a new home loan and save on appraisal costs. However, buyers should still get a home inspection to check for any repair issues.

To obtain an assumable mortgage, buyers must meet specific requirements and receive approval from the lender and, in some cases, the agency sponsoring the mortgage. For example, FHA loans require the buyer to follow the standard FHA loan application process and meet creditworthiness criteria. VA loans, which are available to qualified military members and their spouses, do not require the buyer to be a military member to assume the loan. USDA loans, which are offered to buyers of rural properties, require approval from the USDA and typically involve new rates and terms.

While assumable mortgages are not widely available, they are more common with FHA and VA loans. In rare cases, VA loans closed before March 1, 1988, can be freely assumed without the need for lender approval. However, sellers may still be liable for payments if the buyer defaults. Additionally, some lenders may allow transfers between family members, even if the loan is not officially assumable.

It's important to note that even with an assumable loan, buyers will need to meet the lender's qualifications, including credit checks and providing documentation such as income and employment information. The seller also benefits from an assumable mortgage as they are no longer liable for the mortgage payments once the buyer closes on the home.

Due-on-sale clause

A "due-on-sale" clause, also known as an "acceleration clause" or "alienation clause", is a provision in a mortgage or loan agreement that gives the lender the right to demand payment of the remaining balance of the loan when the property is sold or transferred to a new owner. This clause is designed to protect the lender's interests, particularly in situations where the buyer assumes a mortgage with a low interest rate or terms that the buyer would otherwise be unqualified to obtain.

The due-on-sale clause came into prominence in the 1970s when banks started including it in their mortgages to prevent buyers from assuming existing loans with lower interest rates than new loans. This practice was further enforced by the passing of the Garn-St Germain Depository Institution Act in 1982, which made due-on-sale clauses federally enforceable.

Despite the prevalence of due-on-sale clauses, there are certain legal exceptions that negate lenders' rights to demand full payment of the mortgage. These exemptions include divorce or legal separation, inheritance, and joint tenancy. In the case of divorce or legal separation, the property can be transferred to the spouse or child without invoking the due-on-sale clause, as long as the new owner occupies the property. In the case of inheritance, if a relative inherits and occupies the home, they are not forced to pay off the remaining mortgage balance immediately. However, if the heir chooses not to live in the home, the transfer of title can trigger the due-on-sale clause. Similarly, in the case of joint tenancy, if the borrower dies, the surviving joint tenant automatically assumes the entire mortgage and can continue paying it off as initially planned.

While the due-on-sale clause is a contractual right, it is not a law. This means that transferring title to a property with a due-on-sale mortgage is not illegal, and there are no federal or state laws criminalizing it. However, if the lender discovers the transfer, they have the option to call the loan due and payable, and if it cannot be paid, they can initiate foreclosure proceedings.

Frequently asked questions