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I'm curious to know if it is possible to trade homes with someone, and assuming the homes are approximately the same value, if the swap can be completed without refinancing (namely, without the interest rate going up if the current market rates have gone higher than my current mortgage).

Seems like it would be a matter of trading same-value assets and amending papers. Is it possible?

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  • 6
    I can't see why it would be in the banks' interest to agree to it.
    – Simon B
    Aug 10, 2022 at 19:04
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    Amending which papers? Not only the mortgage notes, but also deeds at the county clerk’s office. And what do you do when the two properties have paid down different amounts (I’ve owned this $400k house for 20 years and only owe $20k, while yo’ve owned your $400k house for 5 years and owe $300k on it.)
    – RonJohn
    Aug 11, 2022 at 2:40
  • You haven't specified a location, so I'm guessing united-states. In united-kingdom, mortage portability (as it's known here) is a highly standard feature.
    – AakashM
    Aug 11, 2022 at 7:59

3 Answers 3

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You are looking for an assumable mortgage. That seemed to be a thing a few decades ago, but there still may be some available. Some FHA, and VA loans are assumable.

This is from the Veterans Administration:

Loan Assumption

One feature of the VA home loan is that is assumable. This means that anyone can assume, or take over payment, on a VA home loan, if they qualify. It is a unique feature that gives you the option to purchase a home with a previously set interest rate or, in a time of need, avoid foreclosure. There could be a situation where you are unable pay back your loan or maybe you are simply unable to sell a home in your area. In any case, this feature of the VA home loan is meant to serve your needs.

Why would this be a benefit to you?

  • When interest rates rise, assuming a low interest rate VA home loan could make the home more desirable to a purchaser
  • The funding fee (unless exempt) is only 0.5%
  • A Veteran can substitute their own VA home loan entitlement to assume your loan, thereby allowing VA to restore your entitlement, assuming the other Veteran has enough entitlement to cover your loan
  • Anyone, even a non-Veteran, can assume your loan, but in such case your entitlement remains with the loan
  • Any equity in the home remains with the loan, however you can negotiate with the buyer on cashing out some or all the equity as part of the sale

VA home loan assumption requires servicer approval, and in some instances VA approval. Be sure to work with your servicer to obtain approval for assumption. They will usually perform an income and credit check to be sure the assumer is a good risk and is not likely to default on the loan

This is from the FHA When Is An FHA Loan Assumable?:

When is an FHA loan assumable? Let’s start by examining what the FHA single-family home loan handbook, HUD 4000.1, defines as a loan assumption. “Assumption refers to the transfer of an existing mortgage obligation from an existing Borrower to the assuming Borrower.”

An FHA loan assumption is generally possible-for most FHA loans closed today, the lender’s participation and approval will be required in order to carry out a loan assumption transaction.

There are still forms required, and the servicer has to approve the switch. They will still look at the buyers income and credit history to make sure it can be afforded.

Trying to do the switch informally is very risky, if one party stops making payments everything collapses. If the lender finds out the assumption wasn't approved they can demand immediate payment of the mortgage balance.

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  • Upvote for teaching me something new, assumable mortgage.
    – MonkeyZeus
    Aug 11, 2022 at 18:00
  • This is the answer. The Closing Disclosure for my mortgage has a "Assumption" section with a "Yes" or "No" and states "your lender will allow, under certain conditions, a buyer to assume this loan on the original terms".
    – Nosjack
    Aug 16, 2022 at 16:11
  • How would someone do it informally?
    – trusktr
    Aug 28, 2022 at 1:21
  • don't get the lenders or the local government involved. Aug 28, 2022 at 18:08
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It is most definitely possible. The bank would need to change the mortgage from property A to property B, and leave everything else intact.

Whether it is practically doable is an entirely different question. There's absolutely no benefit to the bank in such a transaction, and they'd be wasting an opportunity to sell a new loan at a higher interest rate. Since you're locked to the bank, there's no competition, so you would have no leverage to demand anything from your bank. So while there's nothing legally preventing such a transaction from happening, economically it makes no sense for the bank to allow you keeping the lower rate loan instead of forcing you into a higher rate.

Think of it this way - if it was reverse, and the market rates would be lower than your current rate, would you make efforts to preserve the more expensive loan when you have an opportunity to refinance into a cheaper one? Unlikely. So why would the bank?

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is it possible ?

Yes

Will the bank do it?

The bank will only do it for two reasons

  1. Their is a clause in the mortgage that requires them to do this on request. That's unlikely these days.
  2. They make more money that way. That's unlikely too: they make a good chunk of money on fees for the new mortgages and they are certainly not going to voluntarily accept a lower interest rate

Should you do it?

Probably not. If the bank agrees, it's most likely because you will lose out on the deal. Banks are not in the business to be nice to their customers, they try to make money off them.

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