A mortgage is not transferable from one borrower to another unless the lender agrees. That's because few financial institutions and lending programs will let you take over an existing borrower's mortgage payments.

However, there are situations where it is appropriate and legal to transfer a mortgage, such as upon a borrower's death, the dissolution of a marriage, or the creation of a living trust. What you may and cannot do while transferring a mortgage is outlined below.

What Exactly Is A Mortgage Transfer?

A mortgage transfer is when the original borrower reassigns their mortgage to a new owner. According to Rene Segura, head of consumer lending for FBX, the banking business of Informa Financial Intelligence in Dallas, "in essence, this transfers all duties related with the mortgage and lien on the property to somebody new."

A real estate attorney in Somerville, New Jersey, this transfer, or assignment, is often only permissible when the mortgage is assumable. The previous borrower's legal duties to the loan are typically severed with the transfer of an assumable mortgage. The new borrower undertakes to make all future payments at the original interest rate.

Is My Mortgage Transferable?

Make sure you ask your lender if you want to know if your mortgage is transferrable, assumable, or assignable. Unless the buyer is at risk of default, "most lenders would prefer not to conduct a loan transfer," says Dustin Singer, an investor and real estate agent with RE/MAX Citylife in Pittsburgh.

Don't be fooled; mortgages cannot be reassigned between borrowers. This holds for Fannie Mae and Freddie Mac-approved conforming loans and government-insured loans such as the Federal Housing Administration's, the United States Department of Agriculture's, and Fannie Mae and Freddie Mac's conventional loans.

According to Segura, "due-on-sale clauses" are commonly used in this context and stipulate that "the loan must be repaid in full or the complete interest in the property must be conveyed" before the mortgage may be transferred. Therefore, "a new mortgage would need to be completed, and the loan would have to be paid in full before a transfer could occur."

Exception

Your mortgage lender might agree to a transfer even if your loan contains a due-on-sale clause and isn't assumable. They consist of the following:

• The passing of a spouse, co-tenant, or another close family
• To a spouse or children of the borrower
• Separation or divorce arrangements that let one spouse remain in the other's house.
• Lender-beneficiary trusts and living trusts

The new borrower must be added to the dee of the property, the dead owner must be removed from the deed, or the spouse must sign a quitclaim deed for the mortgage to be transferred.

When To Switch Mortgages

There are several reasons why a borrower would desire to switch mortgage servicers. The most typical reasons for a mortgage transfer are the death of the original borrower, the transfer of ownership of the property to a family member, or the transfer of the loan to a more financially stable family member.

"Many individuals want to assume mortgages so that they may take advantage of cheaper interest rates than what they would qualify for today," says Than Merrill, founder, and CEO of FortuneBuilders in San Diego. Segura emphasizes that the lender's permission to transfer ownership in any of these situations is still required.

Possible Substitutes for Changing Your Mortgage

A mortgage transfer might not be the best choice if other alternatives exist. One possibility is to purchase the property from the current borrower using a new mortgage application and an assumption of the debt. The downside is that this involves adapting to different loan conditions and interest rates.

A second borrower can be added to a loan by adding their name to the loan's list of borrowers. The original borrower will still be responsible for paying off the loan, so this isn't the best option.

You can modify the mortgage's terms and interest rate by refinancing the loan and adding a co-borrower. Refinancing may make it simpler to add a new borrower. The borrower remains responsible for repaying the loan, which is a disadvantage.

Bottom Line

It can be easier to transfer a mortgage than to apply for a new loan, pay closing costs, and perhaps face higher interest rates. Many mortgages, however, cannot be transferred, and even if yours can, you can still expect a substantial amount of paperwork.

Segura warns that "the mortgage transfer will necessitate a lot of documentation," since there will be additional requirements and regulations attached to the loan due to the transaction. There may have been a shift in the mortgage rights. Therefore it's essential to read all paperwork carefully.

Keep in mind that transferring a mortgage doesn't relieve the new borrower of responsibility for paying down the loan's original debt.