A mortgage is one of the largest financial investments an individual will make in her lifetime. Because mortgage lenders lose money on foreclosures, most will want you to stay in your home when you have difficulty paying your mortgage and will work with you to find repayment options that fit your financial situation. The best way to get rid of a mortgage without damaging your credit will depend on your personal circumstances. Consider finding someone to assume your mortgage, selling your home, or finding a way to repay your mortgage in full.
Mortgage assumption is a legal process whereby another person takes over your mortgage and its obligations. Assumption is especially attractive to a buyer if your mortgage interest rate is lower than the prevailing market rates. Federal Home Administration (FHA) and Veterans Administration (VA) loans are usually assumable, but you’ll need to check your paperwork to determine if your conventional mortgage contains a “due-on-sale” clause requiring that the mortgage be paid in full if the home is sold. Even if the clause does exist, your mortgage lender might be willing to consider letting a buyer assume your loan, because an assumption reduces the lender’s costs as well as yours and the buyer’s. In return, the lender may require that the person assuming the loan pay an interest rate that is closer to the current market rate. If you choose to engage in a mortgage assumption, be sure to obtain a release of liability from the lender to document the transaction.
Anyone can assume an FHA loan that closed before December 1, 1986 or a VA loan that closed before March 1, 1988 without meeting any requirements, credit or otherwise. However, the seller remains responsible for repayment of those loans if the new borrower fails to make payments. For loans closed later than those dates, buyers who assume a loan have to undergo loan approval from the FHA or VA before assuming the loan, just as a new buyer would.
Sale of Home
The easiest way to get rid of a mortgage without damaging your credit is by selling your home. However, you’ll have to ensure that you receive at least the current outstanding mortgage amount plus any closing costs from the sale or you will still have debt to repay. Check with your mortgage lender to determine your outstanding balance, and have your home’s value assessed by a real estate professional before choosing this option. Once you know that your home’s current value will cover your mortgage debt, list your home with a real estate broker, or sell it yourself to save on broker’s fees.
Repayment in Full
If you can, repay your mortgage in full by taking money from your savings or by paying more than your required payment amount each month. Repaying your mortgage early is the best option if you can afford it, because you’ll save thousands of dollars in interest payments and will also keep your home.
- Federal Trade Commission: Knee Deep in Debt
- The Mortgage Professor: Are Mortgage Assumptions a Good Deal?
- Consumer Financial Protection Bureau. "What Is Private Mortgage Insurance?" Accessed Oct. 31, 2020.
- Internal Revenue Service. "Publication 936 (2019), Home Mortgage Insurance Deduction." Accessed Oct. 31, 2020.