What they are and why they happen
The mortgage industry is filled with terminology that may seem foreign to first-time buyers, and even many seasoned real estate veterans. While mortgage contract language can seem confusing, most terms are relatively straightforward. Many homeowners wonder what a mortgage assignment or mortgage reassignment is. It’s a fairly easy concept, but first, you’ll need to understand that your mortgage may not always stay with the original lender for the entirety of your loan term.
Mortgage Reassignment by a Lender
Lenders can choose, at any time, to sell the mortgage to a different lender or third party. In mortgage contracts and agreements, a clause exists that states a mortgage can be assigned to a different lender at any time. The balance on the mortgage, the agreed upon terms and the payments remain the same, but the actual lender will change hands. The current lender is not required to send a notification to borrowers of a transfer, but the new lender will often send a notification to the borrow to inform them of the change.
Mortgage Reassignment by Borrower
A borrower, or mortgagor, can choose to reassign the mortgage through refinancing, as well. In many cases, a mortgagor may decide to refinance with a new company if they are being offered a better rate, or can substantially drop the payment on their mortgage. This can be accomplished in one of two ways; the mortgagor can satisfy the loan with the original mortgagee and transfer the mortgage to the new lender. In some states, this will require a borrower to pay a recording tax for the transfer. The two lenders can also work together to transfer the mortgage from one lender to the other. While labor-intensive and time-consuming, this type of assignment can save the lender and the borrower from paying recording taxes on a refinance.
Assumable Mortgages
Another form of reassignment is an assumable mortgage. An assumable mortgage is a mortgage that can be transferred to another borrower in the case of the sale of a home. In more traditional buying scenarios, the seller would need to satisfy their mortgage, and then the new owner would secure their own financing. In the past, however, some mortgages had a caveat that a mortgage could be transferred to a new borrower. This was helpful for individuals who did not meet strict financing restrictions; however, most mortgages now no longer allow assumable clauses in their mortgage terms. Allowing for another borrower to assume the balance of the mortgage is a risk for the lender, as they do not know enough about the new borrower to determine whether or not the loan will be paid as agreed.
Some mortgages still allow for a new borrower to assume responsibility, but it is far less common than it has been in the past. This scenario, however, would also be a form of mortgage reassignment, as it moves responsibility for the payment from one borrower to another.