Transferring a home loan to another person is a significant financial decision with various implications for both the current borrower and the individual taking over the loan.
While it isn’t talked about much, there are several common situations in which you may want to transfer a home loan. For example, you may be taking over your parents’ mortgage, transferring your loan to family or a friend, or changing home loan responsibilities after separating with your partner.
Can I Take Over Someone Else’s Mortgage?
The answer to this question isn’t as black and white as a simple yes or no. While it is certainly possible, whether it will happen is entirely in the hands of the lender.
Not all mortgages are assumable, and even among those that are, lenders often have specific requirements and restrictions, and lenders will need to conduct a full assessment of the new borrower.
As a result, it’s not uncommon for lenders to request a new loan application rather than transferring the current loan as it is.
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What is an Assumable Mortgage?
An assumable mortgage is one that allows a new borrower to take over the existing mortgage of the current homeowner. Many mortgages include a due-on-sale clause, allowing the lender to demand full repayment of the loan when the property is sold or transferred.
However, some loans have exceptions to this clause, making assumptions more accessible, but assumable loans are unfortunately quite rare.
Transferring the Property
Transferring a home loan often goes together with transferring the property’s ownership. The process typically involves a number of steps and is very similar to getting a loan for a regular mortgage, as there is usually a sales agreement and a loan application.
Luckily, there are a few situations where transferring the property can differ from an outright purchase in favourable ways.
Favorable Purchase Arrangement
This is when someone close to you sells an asset for below market price. For example, you can consider purchasing the property for the price of the outstanding loan. This can allow you to take over ownership of the property and mortgage, while avoiding some of the costs associated with buying a property.
Some costs will stick around, but in return, you may get other benefits from the lender such as lower interest rates due to the loan being smaller. The lender may also not require you to pay a deposit, however it’s best to be prepared for it anyway.
Gifting Property to Family
Another possibility is gifting the property to family. Depending on the state, you may be able to avoid stamp duty this way, however it is possible there will be capital gains tax involved.
Another thing to note is that in this method, ownership of the property and the loan associated don’t go hand-in-hand, so you will still need to notify the lender, which may require a new loan to pay off the current loan.
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Property Transfer Fees
As touched on, there will be several fees associated with transferring an assumable mortgage. While not all will be applicable to each situation, it’s very likely that you will have some additional fees.
Stamp Duty: Stamp duty will vary from state-to-state and can be avoided in some situations. An important part of stamp duty to note is that it’s calculated on the value of the property, not what it was purchased for.
Capital Gains Tax (CGT): This is only applicable if the house isn’t your primary place of residence. If CGT is a factor, it is best to speak with your accountant on how to best handle the situation.
Assumption Fees: Some lenders charge fees for processing loan assumptions.
Closing Costs: Both parties may be responsible for covering closing costs when the original loan is closed, which can include appraisal fees, title search fees, and legal fees.
While transferring a home loan can be done, it certainly isn’t as simple as it sounds like it should be. Because of this, getting help from a professional can make the process much smoother.
At Glass Financial, our expert advisors are experts in every aspect of home loans and will always do everything in their power to get you the very best result, no matter how difficult the situation may be.
Speak with the Glass team today on 1300 245 277 or send an email to [email protected]