Can I Transfer My Current Mortgage to a New Property?

Homeowners often wonder if their current mortgage can be transferred to a new property. While a literal transfer of an existing mortgage account to a new home is not how the process works, specific financial strategies and loan features can apply when transitioning between properties. Understanding these options is important for planning a home transition.

Understanding Mortgage Portability

Mortgage portability is a feature offered by some lenders that allows a borrower to apply to transfer their current mortgage rate and terms to a new property, usually through the same lender. This process involves applying for a new mortgage that incorporates the original loan’s favorable conditions. It can be a valuable option, particularly if the existing mortgage has a competitive interest rate or beneficial terms that are no longer available in the current market.

To utilize portability, homeowners typically need to sell their current home and purchase a new one within a specific timeframe. The process usually requires the borrower to re-qualify for the mortgage based on their current financial situation, including income, credit score, and debt-to-income ratio. While portability can help avoid early repayment charges, new fees may still be incurred. If the new property requires a larger loan amount, the additional funds might be provided at a different, potentially higher, interest rate, effectively creating two separate mortgage parts.

Differentiating Mortgage Assumptions

A mortgage assumption is a distinct financial transaction where a new buyer takes over the seller’s existing mortgage on a property being sold. In an assumption, the original mortgage remains with the property, and the new buyer steps into the seller’s shoes, agreeing to uphold the original loan’s terms, interest rate, and remaining balance.

Not all mortgages are assumable, but certain government-backed loans, such as those insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA), are typically designed with assumability in mind. For an FHA or VA loan assumption, the new buyer must undergo a qualification process with the lender, including credit checks and income verification, similar to applying for a new loan. The original seller should seek a release of liability from the lender to avoid remaining responsible for the loan if the new owner defaults.

Financing Your New Home

The most common approach for individuals purchasing a new property while still holding an existing mortgage involves a sequential process. This typically begins with selling the current home, using the proceeds from that sale to pay off the existing mortgage in its entirety. Once the previous loan is satisfied, the homeowner then obtains a completely new mortgage for the new property.

This standard process means the new mortgage will come with current interest rates and terms, which may differ significantly from the previous loan. Closing costs, including origination fees, appraisal fees, and title insurance, will apply to the new mortgage. The equity built up in the sold home often serves as a substantial portion, or even the entirety, of the down payment for the new residence.

Financial Considerations During a Home Transition

For instance, a bridge loan can provide short-term financing to cover the gap between buying a new home and selling the old one. These loans are typically short-term, lasting from three to twelve months, and are secured by the equity in the existing home. Bridge loans can offer quick access to funds for a down payment on the new home, but they often come with higher interest rates and additional fees compared to conventional mortgages.

Alternatively, homeowners might consider utilizing a Home Equity Line of Credit (HELOC) or a cash-out refinance on their current property before selling. A HELOC functions like a revolving credit line, allowing access to funds from home equity as needed, which can be used for a down payment on a new home. A cash-out refinance replaces the existing mortgage with a larger loan, providing a lump sum of cash from the home’s equity, which can also fund a new home purchase. Both options involve using the existing home as collateral and require careful consideration of increased debt obligations and potential risks.