What is a Transfer of Mortgage?

A transfer of mortgage is a process through which a party to a mortgage transfers the loan to another party. In some cases, this means a borrower transfers the responsibility for paying a mortgage to another borrower. When this happens, the new borrower is said to assume the mortgage. Sometimes, however, a mortgage lender may transfer the mortgage to another party, and the borrower will begin making payments to the new mortgage holder. Both types of transfer of mortgage situations involve transferring a debt.

Sometimes a borrower decides he no longer wants ownership of a property. In such a case, he may allow another party to assume his mortgage rather than selling the property outright. For example, this may be done because the property owner is having trouble with his mortgage payments and wants to complete a transfer of mortgage to avoid defaulting on his loan. Sometimes, however, a person may begin a transfer of mortgage without being in any type of financial trouble.

Completing a transfer of mortgage from one borrower to another isn’t always possible. Some mortgage contracts have terms that prevent the assumption of the mortgage. Even when it is allowed, the lender typically has strict requirements for the person who wants to assume the loan. For example, the new borrower will typically need good credit and enough income to keep up with the mortgage payments as well as his other bills. If a borrower doesn’t meet the lender’s criteria, the lender may deny the transfer of mortgage.

From the original borrower's point of view, the biggest benefit of transferring a mortgage may be freeing himself from owing the mortgage debt. From the new borrower’s point of view, however, he may be able to take over the property for less than he would have to pay to buy it outright. The original borrower may allow him to take on the property by assuming the mortgage, without paying any additional money. In some cases, however, the original borrower may want some or all of the difference between the value of the home and the balance of the existing mortgage. Additionally, the new borrower may benefit from the mortgage's existing interest rate, which may be lower than the rate he might secure on a new loan.

In some cases, a transfer of mortgage doesn’t occur between borrowers at all. Instead, a lender transfers a mortgage to another company or person. When this occurs, the terms and interest rate of the mortgage usually stay the same. The borrower may not be affected at all, with the exception of having to make payments to a new lender.