The assignment of a mortgage, i.e. the transfer of a loan to one person, most often occurs in the event of a breakup or divorce. The transfer of the loan requires the consent of the bank and the existing borrowers. The effect of the signed contract is “release” from the payment of one of the debtors.
Mortgage assignment – what is it?
Assignment of a mortgage, i.e. assigning the loan to another person, is possible if and only if both parties agree to it. It is worth adding, however, that the parties are not only the current borrowers. The bank is also a party to the loan agreement and in many cases, it is the bank that does not consent to the assignment of the mortgage.
The bank may refuse the assignment of a loan, e.g. when the creditworthiness of the person who would like to repay the loan on their own is insufficient in the opinion of the bank. A similar situation may occur when the “sole payer” also pays other liabilities or when it cannot boast an impeccable credit history. Remember that the assignment of a mortgage entails a thorough analysis of the financial situation of the borrower who would have to pay off the liability himself.
Transferring a loan to another person – when is it worth it?
We most often encounter an assignment of a mortgage when there is a breakup or divorce. In a situation where the paths of existing borrowers (who have so far repaid the loan jointly) have diverged, it is worth determining who will now “take care of” the payment of subsequent installments.
Let us emphasize, however, that only the arrangements between former partners are not enough here. If we do not complete this formality, the bank will continue to treat the existing borrowers as persons equally responsible for the repayment of the liability (even if the parties have agreed otherwise).
It is worth knowing that even when it comes to divorce, joint debts, and therefore also loans, are not divided. Only the discussed loan assignment releases us from further repayment of the liability, i.e. the transfer of the debt to one of the existing spouses (usually it is the person who lives in the property being repaid).
Simply put, the assignment of a mortgage usually occurs when further, joint repayment of the debt is no longer possible for various reasons. The reason for this may be a divorce or breakup, but also a deterioration in the financial situation or health of one of the borrowers. In a situation where the loan is repaid by one person, you can also consider an assignment. An assignment is also a practical solution if one of the parties has kept the property and the other has moved out and wants to “get out of debt”.
An alternative to the assignment of a mortgage may be its early repayment of the mortgage (then it is worth checking what costs are associated with it) or selling an apartment with a loan. We’ll explain how to sell a mortgage-backed property in one of the following articles.
How to transfer a mortgage?
It is worth starting the assignment of a mortgage with … a visit to the branch. It is there that we will find out what the costs of the loan assignment are and what formalities we must complete for it to have legal force.
The first thing we will need is the already mentioned consent of the second borrower. If he does not agree with the loan assignment, the liability cannot be transferred. Assuming that we can count on the consent of the other borrower, we will also need the consent of the bank. It is worth noting here that the initial consent of the bank does not mean that the liability will be transferred. Before it is possible, the bank will examine the creditworthiness of the person to whom the loan would “belong” from now on.
If we are concerned that our creditworthiness will prove insufficient, we can consider overpaying the mortgage or finding an additional, necessarily documented source of income. It is also a good move to repay other liabilities (e.g. credit card limits) before we decide to apply for a mortgage assignment. Also, if during the term of the loan agreement, we became someone else’s guarantor (i.e. we guaranteed someone’s loan), we must take into account that it will also reduce our creditworthiness (to the same extent as if it was our “own” debt).
We should also remember that when applying for a mortgage assignment, we will have to present documents very similar to those we submitted to the bank when applying for the loan that we now want to transfer. It will be necessary, among others, for an income certificate, tax declaration, employment contract, or other documents confirming that we will be able to pay off the loan.
Assuming that the bank agrees to rewrite the loan for one person, we will only have to complete the last formalities, i.e. sign an annex to the contract. From now on, only one of the borrowers will be responsible for paying off the obligation, and the other will be “released” from the debt. In practice, this means that his creditworthiness will improve and he will be able to apply for a loan or loan.
Mortgage assignment: Required documents
What formalities will be related to the assignment depends primarily on the bank where we have the loan. In most cases, it is worth preparing documents such as ID cards for both borrowers, a loan agreement, a certificate of employment and income, and documents regarding the property for which we have taken a loan (e.g. a contract with a developer).
When deciding to transfer the loan to another person, you should also take into account that the bank will charge additional fees for it (if it agrees to the assignment). The most frequent ones include the fee for reconsideration of the application and the fee for signing an annex to the contract. The exact amount of these fees can be found in the Table of Fees and Commissions of “our bank”.
And when will the assignment of a mortgage not pay off? For example, when we have few installments to be repaid or when we are convinced that we do not have sufficient creditworthiness to settle the remaining debt on our own. Depending on what fees the bank would charge itself, it may turn out that a better solution than the assignment of a mortgage will be the aforementioned early repayment of the liability, overpayment of the mortgage, or sale of the indebted property.