How to transfer a home loan to another person

If you have an outstanding home loan, it is possible to transfer this to another person. There are multiple options both parties can consider, but the process is not without some risk. It’s worthwhile doing your research beforehand to assess the opportunities and the risks involved with transferring a home loan to someone else.

Transferring a home loan to another person

Lenders understand that circumstances change for homeowners. There are several reasons why you may potentially agree to transfer your home loan to another person.

• Divorce
• Illness/disability
• Death
• Changes in financial situation

If you purchased a home jointly with a family member or friend, later on your financial situation may allow you to buy out the joint owner, which also requires a change in the ownership.

If someone on the home loan has died, this is considered a special circumstance that lenders are likely to assist you with, in terms of adjusting the ownership of a home loan. However, for all other circumstances, the lender will still typically need to perform a credit check on a new home loan borrower, and require a new loan application be submitted.  

There are what are called ‘credit critical’ and ‘non-credit critical’ issues they must be across. In this instance, changes to land and title must require bank approval, and likely credit approval. This is most common with divorce or bringing a new spouse on to a loan.  

Arguably the most common pathway that property is transferred is to/from family, including between married or de facto partners, between a child or children of either partner or between a trustee for the child, or children of either partner. If you own a property outright, transferring the property’s title to another person can be a more straightforward process. However, if you’re transferring a home loan to another person, this is not possible without the lender’s consent. 

Put simply, to add someone new to a home loan, they will typically need to buy you out of the home loan themselves. This is because any bank or lender in Australia must ensure the person you are transferring the home loan to can responsibly service the repayments. 

The pathways to transferring a home loan

• Favourable purchase agreement

One option to consider is to sell your property at or below market value to the person you wish to transfer the home loan to, also known as a favourable purchase agreement. This allows you to walk away from the ownership of the property, and ensures the person you want to own the property is sold the home, without having to fuss with real estate agents or auctions. This is typically done by parents for their children, as you will likely not make as much money as you otherwise would selling the home at peak price to a new buyer. 

The new homeowner will still need to apply for a home loan and meet any eligibility criteria involved. You could even sell the property for the same value of the mortgage balance as well, but the new homeowner will still need to pay any upfront fees involved, such as stamp duty.

Note - if the purchase agreement is not at arm's length, there will likely be extra scrutiny placed on transaction by the lender and the ATO. You will likely need to put specific stipulations in the agreement to outline this, and address this purchase with the lender, as the lender will need to approve it. 

• Title transfer

If you’re hoping to simply add someone to the property title, it may be worth looking into a title transfer. You will need to obtain a transfer form from your state or territory website, obtain the original certificate of title (likely held by your lender, so check with them first), and provide relevant mortgage documents, if needed. Keep in mind that stamp duty and other ongoing costs will likely be charged. 

For example, in New South Wales, if you want to add a spouse, family member or friend to the title of a property you own, you should complete and submit a Transfer Form 01T to Land & Property Information (LPI). By doing so, you can record that person’s legal interest in the property onto the title to the land.   

Your home loan lender will likely need to approve this person coming onto the property title as well, and may request you refinance your home loan and reapply with a joint mortgage application. 

If your plan is to separate your attachment to the mortgage completely, the second person will typically need to buy you out of the home loan and pay off the mortgage themselves. Again, this will involve a home loan lender approving the second person to come on to the home loan to begin with, and then test their ability to service the home loan without you or your income supporting the repayments.  

Property ownership transfer charges

Lenders may allow home loan transfer to another person, however, this new person must be aware of the potential fees charges they may need to pay upfront, including:

• Stamp duty, calculated on the land valuation.
• Capital gains tax (CGT) may apply if the transfer is for an investment property.
• Transfer of property ownership modifies the mortgage conditions and may entail break fees, especially if you have a fixed interest rate.
• Conveyancing fees - You may also have to incur valuation and legal fees if the services of a conveyancer are required.

Whatever path you decide to take, it may be worth speaking to a conveyancer. These professionals may be able to guide you through the most appropriate course of action for your specific situation, including assisting with any paperwork and legalities involved.

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