What Is a Mortgage Transfer?

A mortgage transfer is when a homeowner transfer their existing home loan – including its current interest rate and terms – to another person. This allows the other person to assume full responsibility for the home and the lender’s lien on it without the other person requiring to obtain a new mortgage.

What types of mortgage transfers are possible?

Most loans are NOT transferable for the reason that they contain a “due on sale” clause.

A due-on-sale clause is a requirement in a mortgage or other loan agreement that the loan be paid in full if the house or asset is resold. These provisions can be triggered either by an entire sale or partial sale of the debtor’s interest in the asset.

However, some loans do not contain “due on sale” clauses, therefore they can be transferred from a seller to a buyer. These are known as “assumable loans”.

There are generally three types of assumable loans:

• VA loans
• FHA loans
• USDA loans

For all three loans – Lender approval is required and the person to whom the loan will be transferred will be subject to meeting certain income and credit standards.

In addition – for VA loans: recipient must not exceed certain income requirements.

Special Circumstances

Sometimes a mortgage can be transferred even if it’s not assumable.

For example, a transfer may be allowed in these situations:

• Transfer between spouses, child or another relative
• Transfer to spouse due to a separation or divorce
• The original borrower passes away and the loan must be transferred to a surviving joint tenant or relative
• Transfer into a Living Trust where the borrower is a beneficiary

Like with an assumable loan, taking over another type of loan means the new borrower still needs to meet requirements set forth by the lender. Eligibility criteria can vary between lenders but will likely include a credit and income check to make sure the new borrower is creditworthy and can afford and is able to repay the loan.

Reasons to make a mortgage transfer

When interest rates are higher, transferring a mortgage is beneficial to a buyer, who would otherwise have a higher interest rate if he/she obtained a new loan. 

When interest rates are low, there is less incentive for a buyer to want to take over someone else’s mortgage. 

Assuming a mortgage also saves on closing costs for the buyer.

Instead of the buyer having to pay loan origination fees and other costs associated with a new mortgage, the buyer will only need to pay a nominal fee to assume the existing loan.

Also, a down payment is not required in order to assume a mortgage. 

However, even if a mortgage transfer is possible and preferable – there are some complications to the process.

What Are Transfer Taxes on a Mortgage?

For most states (such as California), there will be City and County real estate transfer taxes that will need to be paid when real property (a house) is transferred. These are one-time taxes.

The party responsible for paying these taxes varies by location and it could be the buyer, seller, or both. The rate will also vary depending on City and County where the property is located.