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What is Mortgage Novation?

Mortgage novation is a legal process by which a person with a mortgage loan can transfer that loan to another person which releases the original loan holder from the liability of making the payments on the loan. ‘Novation’ is actually a term used in contract and business law that describes the act of either replacing an obligation to perform with a new obligation, or replacing a party to an agreement with a new party.  So mortgage novation is the replacement of the obligation to perform on a mortgage with a new obligated party.


How does mortgage novation work?

In order for a mortgage novation to work all three parties in the transaction would need to come to an agreement (the current mortgagee, the new mortgagee, and the lender).  This does not happen often as lenders rarely approve of these substitutions, and instead prefer for the loan to be refinanced.  Before you get to far into the process you will want to contact the lender directly and tell them that you want to change the ownership of mortgage by using mortgage novation. If the lender does agree to the mortgage novation then a contract is created between the debtor and the third party called a deed of novation, agreement to novate.

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