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Understanding the Assignment of Mortgages: What You Need To Know

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A mortgage is a legally binding agreement between a home buyer and a lender that dictates a borrower's ability to pay off a loan. Every mortgage has an interest rate, a term length, and specific fees attached to it.

Written by Attorney Todd Carney .  Updated November 26, 2021

If you’re like most people who want to purchase a home, you’ll start by going to a bank or other lender to get a mortgage loan. Though you can choose your lender, after the mortgage loan is processed, your mortgage may be transferred to a different mortgage servicer . A transfer is also called an assignment of the mortgage. 

No matter what it’s called, this change of hands may also change who you’re supposed to make your house payments to and how the foreclosure process works if you default on your loan. That’s why if you’re a homeowner, it’s important to know how this process works. This article will provide an in-depth look at what an assignment of a mortgage entails and what impact it can have on homeownership.

Assignment of Mortgage – The Basics

When your original lender transfers your mortgage account and their interests in it to a new lender, that’s called an assignment of mortgage. To do this, your lender must use an assignment of mortgage document. This document ensures the loan is legally transferred to the new owner. It’s common for mortgage lenders to sell the mortgages to other lenders. Most lenders assign the mortgages they originate to other lenders or mortgage buyers.

Home Loan Documents

When you get a loan for a home or real estate, there will usually be two mortgage documents. The first is a mortgage or, less commonly, a deed of trust . The other is a promissory note. The mortgage or deed of trust will state that the mortgaged property provides the security interest for the loan. This basically means that your home is serving as collateral for the loan. It also gives the loan servicer the right to foreclose if you don’t make your monthly payments. The promissory note provides proof of the debt and your promise to pay it.

When a lender assigns your mortgage, your interests as the mortgagor are given to another mortgagee or servicer. Mortgages and deeds of trust are usually recorded in the county recorder’s office. This office also keeps a record of any transfers. When a mortgage is transferred so is the promissory note. The note will be endorsed or signed over to the loan’s new owner. In some situations, a note will be endorsed in blank, which turns it into a bearer instrument. This means whoever holds the note is the presumed owner.

Using MERS To Track Transfers

Banks have collectively established the Mortgage Electronic Registration System , Inc. (MERS), which keeps track of who owns which loans. With MERS, lenders are no longer required to do a separate assignment every time a loan is transferred. That’s because MERS keeps track of the transfers. It’s crucial for MERS to maintain a record of assignments and endorsements because these land records can tell who actually owns the debt and has a legal right to start the foreclosure process.

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Assignment of Mortgage Requirements and Effects

The assignment of mortgage needs to include the following:

The original information regarding the mortgage. Alternatively, it can include the county recorder office’s identification numbers. 

The borrower’s name.

The mortgage loan’s original amount.

The date of the mortgage and when it was recorded.

Usually, there will also need to be a legal description of the real property the mortgage secures, but this is determined by state law and differs by state.

Notice Requirements

The original lender doesn’t need to provide notice to or get permission from the homeowner prior to assigning the mortgage. But the new lender (sometimes called the assignee) has to send the homeowner some form of notice of the loan assignment. The document will typically provide a disclaimer about who the new lender is, the lender’s contact information, and information about how to make your mortgage payment. You should make sure you have this information so you can avoid foreclosure.

Mortgage Terms

When an assignment occurs your loan is transferred, but the initial terms of your mortgage will stay the same. This means you’ll have the same interest rate, overall loan amount, monthly payment, and payment due date. If there are changes or adjustments to the escrow account, the new lender must do them under the terms of the original escrow agreement. The new lender can make some changes if you request them and the lender approves. For example, you may request your new lender to provide more payment methods.

Taxes and Insurance

If you have an escrow account and your mortgage is transferred, you may be worried about making sure your property taxes and homeowners insurance get paid. Though you can always verify the information, the original loan servicer is responsible for giving your local tax authority the new loan servicer’s address for tax billing purposes. The original lender is required to do this after the assignment is recorded. The servicer will also reach out to your property insurance company for this reason.  

If you’ve received notice that your mortgage loan has been assigned, it’s a good idea to reach out to your loan servicer and verify this information. Verifying that all your mortgage information is correct, that you know who to contact if you have questions about your mortgage, and that you know how to make payments to the new servicer will help you avoid being scammed or making payments incorrectly.

Let's Summarize…

In a mortgage assignment, your original lender or servicer transfers your mortgage account to another loan servicer. When this occurs, the original mortgagee or lender’s interests go to the next lender. Even if your mortgage gets transferred or assigned, your mortgage’s terms should remain the same. Your interest rate, loan amount, monthly payment, and payment schedule shouldn’t change. 

Your original lender isn’t required to notify you or get your permission prior to assigning your mortgage. But you should receive correspondence from the new lender after the assignment. It’s important to verify any change in assignment with your original loan servicer before you make your next mortgage payment, so you don’t fall victim to a scam.

Attorney Todd Carney

Attorney Todd Carney is a writer and graduate of Harvard Law School. While in law school, Todd worked in a clinic that helped pro-bono clients file for bankruptcy. Todd also studied several aspects of how the law impacts consumers. Todd has written over 40 articles for sites such... read more about Attorney Todd Carney

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Understanding how assignments of mortgage work.

The bank or other mortgage lender that provides a borrower with the funds to purchase a home often later transfers or assigns its interest in the mortgage to another firm. When this happens, the borrower will start sending monthly mortgage payments to the new owner of the mortgage instead of the original lender. Some other things, such as the available modes of payment, many also change.  However, the general terms of the mortgage, such as the interest rate and payment amounts, will stay the same.

If you need help with a mortgage, consider finding a financial advisor to work with .

Mortgage Assignment Basics

Mortgages are assigned using a document called an assignment of mortgage. This legally transfers the original lender’s interest in the loan to the new company. After doing this, the original lender will no longer receive the payments of principal and interest. However, by assigning the loan the mortgage company will free up capital. This allows the original lender to make more loans and generate additional origination and other fees.

At closing, borrowers sign a document granting the original lender the right to assign the mortgage elsewhere. This means the original lender doesn’t have to ask for permission to assign the mortgage but can do so whenever it wants to. Often this occurs within a few months after the closing, but it can happen at any time during the term of a mortgage. Once a loan has been assigned, it can be assigned again.

The assignment of mortgage document uses several pieces of information to accurately identify the specific mortgage that is being transferred. These generally include:

The name of the borrower

The date of the mortgage

The jurisdiction where it was recorded

The amount of money that was originally loaned

A legal description of the home or other property used as collateral to secure the loan.

Although a lender doesn’t need to request the borrower’s permission before assigning a mortgage, the lender does have to notify the borrower after the mortgage has been assigned. This notice will generally provide the new lender’s name, contact information and mailing address or other information need to make payments.

Effects of Mortgage Assignment

When a mortgage is assigned, the original terms of the mortgage remain unchanged. The monthly principal and interest, interest rate and total number of payments required to pay the loan off will be the same as on the mortgage when it was signed at closing.

A company assigned a mortgage may have different methods of accepting monthly payments, such as online payments, paper checks or money orders. A borrower who wants more payment methods may be able to get a new mortgage holder to provide them upon request.

Some things may change, however. For instance, the new owner of the mortgage may have a different method of handling escrow payments that are used to pay property taxes and the premiums for hazard insurance. The law requires mortgage companies to charge no more than one-twelfth the annual cost of property taxes and insurance each month. However, they can also require borrowers to maintain a cushion of up to one-sixth the annual total required to pay taxes and insurance. If a new mortgage company has a different policy on this cushion, it could change the total monthly payment.

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The borrower also does not need to notify the local taxing authorities or the hazard insurance provider about the assignment. The new holder of the mortgage is required to handle these notifications.

Borrowers should check the information about where payments are supposed to go. This need to be accurate so payments will be directed correctly to the holder of the mortgage and the borrower will receive credit for them.

Another important matter that may change when a loan is assigned is the procedure the mortgage company will follow in the event of default. Borrowers should make themselves familiar with the notification methods used by the new mortgage to let them know if payments are not being received and foreclosure is in the offing.

The Bottom Line

Home mortgages are often assigned by their original lenders to other companies. Assignment usually doesn’t change much for the borrower, except that the payments will go to a different address. The original loan amount, interest payment, term and monthly principal and interest part of the payment will stay the same. Assigning mortgages frees up money for the lenders to make more loans. Borrowers don’t have to be told a mortgage will be assigned, since they agree to this at closing. However, they must be notified after an assignment and told how to contact the new mortgage holder.

Mortgage Tips

A financial advisor can help you evaluate home buying and other important financial moves. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now .

Borrowers can find out whether and where their mortgage has been assigned through the Mortgage Electronic Registration Systems (MERS). This is an organization created by mortgage companies to track mortgage assignments. Borrowers can use a free online service provided by MERS to find out who owns their mortgage.

Mortgage rates are more volatile than they have been in a long time. Check out SmartAsset’s mortgage rates table to get a better idea of what the market looks like right now.

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The post Understanding How Assignments of Mortgage Work appeared first on SmartAsset Blog .

What Is Assignment of Mortgage: What You Need to Know

We will explore the idea of mortgage assignment in this thorough guide, going over its definition, steps involved, potential consequences, and more. So read on to learn more about this important facet of the real estate market, whether you’re a homeowner, a prospective buyer, or just inquisitive about mortgages.

What is Assignment of Mortgage?

The assignment of mortgage, often simply referred to as mortgage assignment , is a legal process that involves the transfer of a mortgage loan from one party to another. This transfer typically occurs between mortgage lenders or financial institutions and is a common practice within the mortgage industry.

The Key Parties Involved

• Assignor: The person transferring the mortgage is known as the assignor. The initial lender or financial organization that gave the borrower the mortgage loan is often the assignor.
• Assignee: The assignee is the party receiving the mortgage assignment. This could be another lender or financial institution that is buying the mortgage, often as part of a financial transaction.
• Borrower: The borrower is the individual or entity that initially took out the mortgage loan to finance the purchase of a property.

Why is Assignment of Mortgage Necessary?

Assignment of mortgage occurs for various reasons, and it serves specific purposes for all parties involved.

1. Loan Portfolio Management

Mortgage assignment is a common practice used by lenders to better manage their loan portfolios. Lenders might raise funds to offer more loans or issue new mortgages by selling or transferring mortgage loans to other financial organizations. This procedure aids in keeping their portfolios risk-balanced and liquid.

2. Risk Mitigation

Lenders may also assign mortgages to mitigate risk. When they transfer a mortgage to another entity, they are essentially transferring the associated risk as well. This can be a strategic move to reduce their exposure to potential defaults or financial instability.

3. Secondary Mortgage Market

The secondary mortgage market plays a significant role in the assignment of mortgages. Many mortgages are bundled together into mortgage-backed securities (MBS) and sold to investors. Assignment of mortgages allows lenders to participate in this market, which provides additional funding for new mortgage loans.

The Assignment of Mortgage Process

The process of assigning a mortgage, or deciding to sell your mortgage , involves several steps and legal requirements. Here’s a breakdown of the typical process:

1. Agreement between Parties

The assignor (original lender) and assignee (new lender or investor) must enter into a formal agreement outlining the terms and conditions of the new mortgage assignment. This agreement includes details such as the transfer price, terms of the loan, and any specific warranties or representations.

2. Notice to the Borrower

Once the agreement is in place, the borrower is typically notified of the assignment. This notice informs them that the servicing of their mortgage, including collecting monthly mortgage payments, will now be handled by the assignee. The borrower is advised to send future payments to the assignee.

3. Recordation

In many jurisdictions, mortgage assignments must be recorded with the appropriate government office, such as the county recorder’s office. This recordation provides public notice of the transfer and ensures that the assignee has a legal claim on the property.

4. Continuation of Monthly Mortgage Payments

For the borrower, the most noticeable change is the address where monthly payments are sent. Instead of sending payment to the original lender, the borrower will send them to the assignee. It is crucial for borrowers to keep records of these changes to avoid any confusion or missed payments.

Implications of Mortgage Assignment for Borrowers

While the assignment of mortgage primarily involves lenders and investors, it can have implications for borrowers as well. Here are some important considerations for borrowers:

1. No Change in Loan Terms

Borrowers should be aware that the assignment of mortgage does not change the terms of their loan. The interest rate, monthly payments, and other loan terms remain the same. The only change is the entity to which payments are made.

2. Proper Record-Keeping

Borrowers must maintain accurate records of their mortgage payments and correspondence related to the assignment. This helps ensure that payments are correctly credited and can be vital in case of any disputes or issues.

3. Communication with the New Lender

If borrowers have questions or concerns about their mortgage after the assignment, they should reach out to the new lender or servicer. Open and clear communication can help address any issues that may arise during the transition.

4. Property Taxes and Insurance

Borrowers are still responsible for property taxes and homeowner’s insurance, even after the assignment of mortgage. These payments are typically not affected by the transfer of the loan.

The Role of Mortgage Servicers

Mortgage servicers play a crucial role in the assignment of mortgage process. This section will explore the responsibilities of mortgage servicers, their relationship with borrowers, and how they manage mortgage loans on behalf of investors or lenders.

Legal Requirements and Regulations

Assignment is subject to various legal mortgage requirements and regulations that vary by jurisdiction. Discussing these legal aspects will help readers understand the legal framework governing the assignment of mortgages in their region and how it impacts the process.

Impact on Credit and Credit Reporting

The assignment of mortgage can have implications for borrowers’ credit reports and scores. Explore how mortgage assignment can affect credit histories, reporting by credit bureaus, and what borrowers can do to protect their credit during and after the assignment.

Assignment of Mortgage vs. Assumption of Mortgage

Differentiating between assignment of mortgage and assumption of mortgage is important. This section will explain the key differences, where one party takes over the mortgage and liability, while the other party merely transfers the loan to a new lender.

Impact on Property Taxes and Insurance

Taxes and insurance are essential components of homeownership. Explain how the assignment of mortgage may affect property tax payments and the homeowner’s insurance policy, as these are often escrowed into the monthly mortgage payment.

Potential Challenges and Disputes

Discuss common challenges or disputes that can arise during or after the assignment of mortgage, such as miscommunication, incorrect payment processing, or disputes over ownership rights. Offer advice on how to handle and resolve these issues.

Foreclosure and Default Scenarios

In the unfortunate event of mortgage default, understanding how the assignment of mortgage affects foreclosure proceedings is crucial. Explain how the assignee handles foreclosures and what options are available to borrowers facing financial difficulties.

Future Trends and Innovations

Explore emerging trends and innovations in the mortgage industry related to the assignment of mortgages. This could include the use of blockchain technology, digital mortgages, or other advancements that may impact the process.

In the complex world of real estate and mortgage financing , the assignment of mortgage plays a pivotal role in the movement of funds and management of risk. It allows lenders to efficiently manage their portfolios, mitigate risk, and participate in the secondary mortgage market. For borrowers, understanding the process and implications of mortgage assignment is essential to ensure the smooth continuation of their monthly mortgage payments.

As you navigate the world of homeownership or consider entering it, remember that the assignment of mortgage is a routine occurrence designed to benefit all parties involved. By staying informed and maintaining open communication with your lender or servicer, you can ensure that your mortgage loan remains a manageable and secure financial commitment.

In summary, purchase of mortgage is a vital mechanism within the mortgage industry that facilitates the transfer of mortgage loans from one party to another. This process helps lenders manage their portfolios, mitigate risk, and participate in the secondary mortgage market.

For borrowers, it means a change in the entity collecting their monthly mortgage payments but typically does not alter the terms of the original loan. Keeping accurate records and staying informed about the transition are crucial steps to ensure a smooth experience for homeowners. So, whether you’re a homeowner, lender, or investor, understanding assignment of mortgage is key to navigating the real estate landscape effectively.

This article is for informational purposes only and does not constitute legal, tax, or accounting advice.

Written by Alan Noblitt

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How does an assumable mortgage work?

Can a family member assume a mortgage, what types of mortgages are assumable.

• Pros and cons
• How much does it cost?

How to find an assumable mortgage

What is an assumable mortgage how to assume a mortgage.

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• When a mortgage is assumable, it means the current borrower can transfer the loan to the buyer of their home.
• In general, only government-backed mortgages are assumable.
• To assume a mortgage, you'll need to have enough cash to cover the difference between the loan balance and the home price.

With mortgage rates still well above their pre-pandemic levels, borrowers are desperate for ways to keep their monthly payments low.

Many current homeowners are still paying off mortgages they got when rates were much lower than they are today. Average 30-year mortgage rates have remained above 6% so far in 2024, and it may be a while before we see rates fall below this threshold.

This means it's very expensive to get a mortgage right now.

However, you don't need a time machine to take advantage of a lower mortgage rate. You just need to find a seller with an assumable mortgage.

An assumable mortgage is a type of home loan that can be transferred to a new borrower.

With an assumable mortgage, a home seller transfers their existing mortgage to the buyer of the mortgaged property so the buyer doesn't have to apply for a new mortgage.

As the buyer, you'll take on the seller's terms, including the interest rate, outstanding balance, remaining term length, and mortgage servicer. Your down payment for the house must make up the difference between the sale price and the amount owed. For example, let's say a home is for sale for $400,000, and the seller still owes $350,000. You'll need to make a $50,000 down payment to cover the difference.

To assume a mortgage, you'll need to meet the lender's requirements, including its minimum credit score and maximum debt-to-income ratio . The lender will approve you, and the seller can request to be released from the mortgage.

You might be able to assume a mortgage from a family member. Look at their mortgage contract to get an idea of your options, then contact their mortgage lender to discuss details.

First, see if the contract clearly states that the mortgage is assumable. Then search for a due-on-sale clause. This is a provision in some contracts that states that the owner must pay off their mortgage in full if they transfer it to another person. 

Even if there is a due-on-sale clause, some lenders list exceptions regarding family members. For example, it might state that a family member can assume the mortgage if the owner dies, or that the owner can transfer the mortgage to a child or spouse.

Regardless of the contract terms, you and/or the owner should reach out to the lender to talk about options. Even if the contract doesn't allow them to transfer the mortgage to you, the lender might agree to add your name to the mortgage. In this case, both you and the original owner will be on the hook for payments.

Typically, you can't assume a fixed-rate conventional mortgage . In some cases, you may be able to assume an adjustable-rate conventional mortgage.

There are three main types of mortgages that are assumable, and they're all government-backed mortgages : VA, FHA, and USDA loans.

Assuming a VA mortgage

For VA loans , the original buyer must be an active military member, veteran, or family member. But you don't need to be affiliated with the military to assume a VA mortgage.

The lender and regional VA loan office will need to approve you to assume a VA mortgage. The exception is for VA mortgages that originated before March 1, 1988 — then you don't need lender or office approval.

FHA assumable mortgage

As the buyer, you must meet the lender's criteria for an FHA loan . In most cases, this means at least a 580 credit score and a debt-to-income ratio of 43% or lower.

USDA assumable mortgage

USDA loans are for buyers who are earning a low-to-moderate income and buying a home in a rural area. To assume a USDA mortgage, you'll need to meet income requirements for your county. You'll also need to meet the lender's credit score and debt-to-income ratio requirements.

Pros and cons of an assumable mortgage

• No appraisal. You don't have to get a home appraisal  when you assume a mortgage, which could save you hundreds of dollars. You may still want to schedule an inspection, though, to decide if you want to live in the home.
• Good option if interest rates are increasing. Are mortgage rates going up right now? You might be able to lock in a lower rate by taking on the seller's mortgage than by applying for a new one.
• Poor option if interest rates are decreasing. If rates are going down, you may want to apply for a new mortgage and get a lower rate rather than assume a mortgage and get stuck with a higher rate.
• Potentially large down payment. You must make up the difference in the seller's home equity. For example, if the home is selling for $300,000 and the owner still owes $200,000, you have to make a $100,000 down payment.
• Limited to the seller's terms. With your own mortgage, you can shop around for the lender, mortgage type, term length, and interest rate you want. With an assumable mortgage, you are tied to the seller's terms.

How much does it cost to assume a mortgage?

The cost to assume a mortgage partly depends on the amount of your down payment. You'll need to pay the difference of what the home is worth versus how much the seller still owes. This could be a few thousand dollars or tens of thousands of dollars.

You'll also have to pay closing costs as you would with a regular mortgage (with the exception of the appraisal fee). Closing costs typically cost between 3% and 6% of the loan amount.

Assuming a mortgage could be the right move if you can afford the down payment and closing costs and are able to lock in a good interest rate. It's a complicated process, though, so talk to the lender about your options.

It can be difficult to find a seller with an assumable mortgage, particularly because some sellers might not even realize they have one and thus don't advertise it.

You can try to find available homes with assumable mortgages on them by doing a keyword search on a real estate listing site like Zillow or Redfin.

You could also try asking the seller (or having your real estate agent ask) if you find a house you like and are wondering if they have a mortgage that's assumable.

A new service called Roam aims to help buyers connect with sellers who have assumable mortgages. Roam says that when you sign up, it will find listings for you with assumable mortgages that have rates as low as 2%. At closing, you'll pay a 1% fee.

Assumable mortgage FAQs

When a mortgage is assumable, it means that a homebuyer can take on — or assume — a seller's existing mortgage, along with the rate, principal balance, servicer, and other terms that come with it.

It's often difficult to even find assumable mortgages that have a seller willing to work with you. If you are able to find one, they can be hard to qualify for, since you'll typically need to bring a lot of money to the table to make up the difference between what the seller owes and how much their home is worth.

Getting an assumable mortgage transferred to you and completing your home purchase could take a couple of months or more, depending on the details of the transaction.

One of the main disadvantages of an assumable mortgage is that it can end up being really expensive. As the buyer, you'll need to come up with the funds to cover the seller's current equity, which could be thousands of dollars more than a standard down payment.

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Benefits for the Seller

Advantages of assumable mortgages, disadvantages of assumable mortgages, when loans can be assumable, the bottom line.

• Personal Finance

What Are the Benefits of an Assumable Mortgage?

The main benefit of an assumable mortgage is that it allows the buyer of a property to assume the mortgage from the seller. This type of mortgage, while fairly uncommon now, can offer a few different types of benefits for both the buyer and the seller. However, whether getting an assumable mortgage is a good idea depends several factors, including whether the buyer can get a mortgage rate lower than prevailing market interest rates .

Learn how an assumable mortgage works and the advantages of using one, along with some downsides to consider.

Key Takeaways

• Assumable mortgage benefits can have a better interest rate for the buyer than the market rates.
• For the seller, an assumable mortgage helps them avoid settlement costs.
• Generally, most mortgages are no longer assumable.
• Some USDA, VA, and FHA loans may be assumable if they meet certain criteria.
• You must still qualify for a mortgage that you want to assume.

An assumable mortgage can provide several benefits for the buyer and the seller, depending on the situation. First, for the buyer, the seller's mortgage may offer a lower interest rate than the current market rates, which can save the buyer a significant amount in interest costs over the life of the loan.

An assumable mortgage can also help the buyer avoid closing costs they would incur if they took out a new mortgage. Closing costs are fees you pay when you make a real estate transaction official. They can include real estate commission, taxes, origination fees, title filings, and insurance premiums. They are typically about 3% to 6% of the loan amount.

Generally, loans made during the last 20 years of a mortgage are rarely assumable with the notable exception of Veteran Affairs (VA) and Federal Housing Administration (FHA) loans.

The seller can also benefit from an assumable mortgage. The seller can share in the savings that the buyer receives with their lower interest rate. They can, for example, charge a higher price for the property, require the buyer to pay the closing costs that the seller may incur, or demand cash payment for part of the buyer's savings over an agreed-upon time frame.

For example, if the current interest rate is 8%, the assumable mortgage rate is 5%, and the buyer plans to live in the home for five years, the seller might demand half of the expected savings for the five-year period. In such a case, the assumable mortgage may benefit the seller even more than the buyer.

Here are some of the advantages and disadvantages of assumed mortgages for both buyers and sellers.

If the assumable interest rate is lower than current market rates, the buyer saves money directly.

There are also fewer closing costs associated with assuming a mortgage. This can save money for the seller as well as the buyer. If the buyer is gaining a lower interest rate, the seller may find it easier to negotiate a price closer to the fair market asking price.

The seller may also benefit from using the assumable mortgage as a marketing strategy to attract buyers. Not all mortgages are assumable, and the seller could get the upper hand over the market competition if they can offer this advantage.

A buyer who assumes a mortgage may have to cover any part of the home price that the mortgage does not cover. That may require a large amount of cash or a second mortgage. If the home is valued at a price greater than the mortgage that remains on the home, the buyer must make up the difference.

A home might be on the market for $350,000, but the mortgage to be assumed is only $200,000. The buyer will need to contribute $150,000.

A second mortgage can have a couple downsides. First, when there are two mortgage lenders involved, it can be more complicated to manage two loans and understand the different terms of each loan.

Also, a second loan may have a higher interest rate and will entail closing costs. The additional costs of a second loan can negate the benefits of the assumable loan.

Assumable mortgages are now much less common than they once were. Some mortgages from Veterans Affairs (VA), Federal Housing Authority (FHA), and U.S. Department of Agriculture (USDA) may be assumed provided the buyer receives credit approval from the mortgage lender.

This contingency is not placed on the lender, who agrees that the loan may be assumed but, rather, it is a way for the lender to determine if the buyer is credit-worthy. In such cases, the seller will not receive any of the arbitrage profits, but the buyer must pay additional fees to the VA, FHA, or USDA.

Is it Hard to Get an Assumable Mortgage?

These days, assumable mortgage are more difficult to get. Only certain VA, FHA, and USDA loan offer them, and they must meet certain criteria. You also must meet the lending criteria to receive any loan that is assumable.

Do You Have to Pay a Down Payment on an Assumable Loan?

If you are receiving the seller's assumable mortgage, you do not have to make a down payment. You do have to meet the requirements of the loan. And you may have to pay the seller any difference in the home value and the mortgage balance.

Can You Negotiate an Assumable Mortgage?

You can negotiate the price of the home and any compensation for the seller, but you cannot change the terms of an assumable mortgage. If you are taking over the assumable mortgage, you will be responsible for the same terms and conditions as the original borrower.

An assumable mortgages has several benefits, but they also have downsides to consider. The right type of mortgage for your situation will depend on a number of factors about your personal situation and the broader housing market and interest rate conditions.

National Association of Realtors. " View Average Closing Costs By State ."

U.S. Department of Housing and Urban Development. " Chapter 7. Assumptions ," Page 1.

U.S. Department of Veteran Affairs. " Chapter 6 Home Loan Guaranty ."

Cornell Law School, Legal Information Institute. " Assumable Mortgage ."

United States Department of Agriculture. " Chapter 2 - Overview of Section 502 ."

U.S. Department of Housing and Urban Development. " Chapter 7. Assumptions ," Page 2.

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Assignment Of Loan

Jump to section, what is an assignment of loan.

Under an assignment of loan, a lender (the assignor) assigns its rights relating to a loan agreement to a new lender (the assignee). Only the assignor's rights under the loan agreement are assigned. The assignor will still have to perform any obligations it has under the facility agreement.

The debtor, the recipient of the loan, must be notified when a debt is assigned. When there is an assignment of a loan, a Notice of Assignment (NOA) is sent out to the debtor informing them that a new party is now responsible for collecting any outstanding amount.

Assignment Of Loan Sample

Reference : Security Exchange Commission - Edgar Database, EX-10.14 5 dex1014.htm ASSIGNMENT OF LOAN DOCUMENTS , Viewed October 21, 2021, View Source on SEC .

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General practitioner since 2005, general practice; civil disputes, torts.... logo Call us: (410) 878-7006 Menu Services Maryland Mobile Last Will & Testament Services All Maryland Legal Services Susan C. Trimble Attorney at Law WHAT WE ARE ABOUT Susan C. Trimble, is an established attorney in the Maryland area. Her work is infused with commitment to her community and family. is tailored to your wants and needs. Here you will find an approachable, personable and conscientious advocate. EDUCATION: Juris Doctorate (JD). University of Baltimore School of Law, Baltimore, Maryland, USA. 2006. Bachelor of Science (BS), English Literature. Towson University, 1989. Associate in Claims, (AIC) certification. Fraud Claims Law Associate, (FCLS) certification.

I have been practicing law since 2018. I used to be a litigator at a nationwide practice before going in-house at a fintech company. I have experience drafting NDAs, SaaS contracts, service agreements, and stock purchase agreements.

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Video transcript

Collateral assignment of life insurance

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Our content is backed by Coverage.com, LLC, a licensed insurance producer (NPN: 19966249). Coverage.com services are only available in states where it is licensed . Coverage.com may not offer insurance coverage in all states or scenarios. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way.

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Secured loans are often used by individuals needing financial resources for any reason, whether it’s to fund a business, remodel a home or pay medical bills. One asset that may be used for a secured loan is life insurance. Although there are pros and cons to this type of financial transaction, it can be an excellent way to access needed funding. Bankrate’s insurance editorial team discusses what a collateral assignment of life insurance is and when it might—or might not—be the best loan option for you.

What is collateral assignment of life insurance?

A collateral assignment of life insurance is a method of securing a loan by using a life insurance policy as collateral . If you pass away before the loan is repaid, the lender can collect the outstanding loan balance from the death benefit of your life insurance policy . Any remaining funds from the death benefit would then be disbursed to the policy’s designated beneficiary(ies).

Why use life insurance as collateral?

Collateral assignment of life insurance may be a useful option if you want to access funds without placing any of your assets, such as a car or house, at risk. If you already have a life insurance policy, it can be a simple process to assign it as collateral. You may even be able to use your policy as collateral for more than one loan, which is called cross-collateralization, if there is enough value in the policy.

Collateral assignment may also be a credible choice if your credit rating is not high, which can make it difficult to find attractive loan terms. Since your lender can rely on your policy’s death benefit to pay off the loan if necessary, they are more likely to give you favorable terms despite a low credit score.

Pros and cons of using life insurance as collateral

If you are considering collateral assignment, here are some pros and cons of this type of financial arrangement.

• It may be an affordable option, especially if your life insurance premiums are less than your payments would be for an unsecured loan with a higher interest rate.
• You will not need to place personal property, such as your home, as collateral, which you would need to do if you take out a secured loan. Instead, if you pass away before the loan is repaid, lenders will be paid from the policy’s death benefit. Any remaining payout goes to your named beneficiaries.
• You may find lenders who are eager to work with you since life insurance is generally considered a good choice for collateral.
• The amount that your beneficiaries would have received will be reduced if you pass away before the loan is paid off since the lender has first rights to death benefits.
• You may not be able to successfully purchase life insurance if you are older or in poor health.
• If you are using a permanent form of life insurance as collateral, there may be an impact on your ability to use the policy's cash value during the life of the loan. If the loan balance and interest payments exceed the cash value, it can erode the policy's value over time.

What types of life insurance can I use as collateral for a loan?

You may use either of the main types of life insurance— term and permanent —for collateral assignment. If you are using term life insurance, you will need a policy with a term length that is at least as long as the term of the loan. In other words, if you have 20 years to pay off the loan, the term insurance you need must have a term of at least 20 years.

Subcategories of permanent life insurance, such as whole life , universal life and variable life, may also be used. Depending on lender requirements, you may be able to use an existing policy or could purchase a new one for the loan. A permanent policy with cash value may be especially appealing to a lender, considering the added benefit of the cash reserves they could access if necessary.

How do I take out a loan using a collateral assignment of life insurance?

If you already have enough life insurance to use for collateral assignment, your next step is to find a lender who is willing to work with you. If you don’t yet have life insurance, or you don’t have enough, consider the amount of coverage you need and apply for a policy . You may need to undergo a medical exam and fill out an application .

Once your policy has been approved, ask your insurance company or agent for a collateral assignment form, which you will complete and submit with your loan application papers. The form names your lender as an assignee of the policy—meaning that they have a stake in its benefits for as long as the loan exists. You will also name beneficiaries or a single beneficiary, who will receive whatever is left over from the death benefits after the loan is repaid.

Note that you will need to stay current on your life insurance premium payments while the collateral assignment is active. This will be stated in the loan agreement, and failure to do so could have serious repercussions.

Alternatives to life insurance as collateral

If you are considering a collateral assignment of life insurance, there are a few alternative funding options that might be worth exploring. Since many factors determine each option, working with a financial advisor may be the best way to find the ideal solution for your situation.

Unsecured loan

Depending on your situation, an unsecured loan may be more affordable than a secured loan with life insurance as collateral. This is more likely to be the case if you have good enough credit to qualify for a low-interest rate without having to offer any type of collateral. There are many different types of unsecured loans, including credit cards and personal loans.

Secured loan

In addition to life insurance, there are other items you can use as collateral for a secured loan . Your home, a car or a boat, for example, could be used if you have enough equity in them. Typically, secured loans are easier to qualify for than unsecured, since they are not as risky for the lender, and you are likely to find a lower interest rate than you would with an unsecured loan. The flip side, of course, is that if you default on the loan, the lender can take the asset that you used to secure it and sell it to recoup their losses.

Life insurance loan

Some permanent life insurance policies accumulate cash value over time that you can use in different ways. If you have such a policy, you may be able to partially withdraw the cash value or take a loan against your cash value. However, there are implications to using the cash value in your life insurance policy, so be sure to discuss this solution with a life insurance agent or your financial advisor before making a decision.

Home equity line of credit (HELOC)

A home equity line of credit (HELOC) is a more flexible way to access funds than a standard secured loan. While HELOCs carry the downside of risking your home as collateral, you retain more control over the amount you borrow. Instead of receiving one lump sum, you will have access to a line of credit that you can withdraw from as needed. You will only have to pay interest on the actual amount borrowed.

Frequently asked questions

What is the best life insurance company, what type of loans are collateral assignments usually associated with, what are other common forms of collateral, what are the two types of life insurance assignments.

Related Articles

What is collateral insurance and how does it work?

What does life insurance cover?

What is an irrevocable beneficiary?

Life insurance death benefits

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14 Mortgage Questions to Ask Your Lender — and the Answers You Want

Some or all of the mortgage lenders featured on our site are advertising partners of NerdWallet, but this does not influence our evaluations, lender star ratings or the order in which lenders are listed on the page. Our opinions are our own. Here is a list of our partners .

Having a list of mortgage questions to ask potential lenders is just the start. Knowing the answers you’re looking for puts you ahead of the game.

1. Which type of mortgage is best for me?

This question will help you determine whether you’re talking to a salesperson or a quality advisor. When you ask, "What are my options?" for each type of loan discussed, the mortgage lender should tell you the pros and the cons in light of your situation.

» MORE: What is a mortgage?

to see your personalized matches

2. How much down payment will I need?

A 20% down payment is every lender’s ideal, but it’s not always required. Qualified buyers can find mortgages with as little as 3% down , or even no down payment. Again, there are considerations for every down payment option . The best lenders will take the time to walk you through the choices.

» MORE: Calculate your down payment

3. Do I qualify for any down payment assistance programs?

If you’re interested in local, state and national down payment assistance programs , lenders with knowledge of them — and the wherewithal to help you navigate the process — are well worth the hunt.

» FIND: Best zero- and low-down-payment lenders

4. What is my interest rate?

You probably already planned to ask this mortgage question. It’s the one benchmark we all understand. Or do we? Lenders can move the needle on your mortgage interest rate a number of ways, most of them involving additional fees.

But after talking to at least a couple of lenders, you’ll get an idea of a ballpark interest rate you’ll qualify for. Let’s say it’s 6%. We’ll call that your payment interest rate because that’s what your monthly mortgage payment will be based on.

Knowing that, you’ll move on to the next — and very important — question, about the annual percentage rate, or APR.

By the way, if you’re considering an adjustable-rate mortgage rather than a fixed-rate loan, you’ll want to ask: How often is the payment interest rate adjusted? What is the maximum annual adjustment? What is the highest cap on the rate?

» MORE: Compare current mortgage rates

5. What is the annual percentage rate?

Now that you have an idea of what your payment rate will be, it’s time to find out what your annual percentage rate is. The difference between the two? The APR incorporates all of the embedded fees of the loan.

Ask your lender if any discount points are included in your APR. To make an apples-to-apples comparison among lenders, the answer you're looking for is "No." You can always decide later to buy discount points, which are extra fees you pay upfront to lower your interest rate.

When you have zero-discount-point APRs from competing lenders, you can see who has the lowest fees for the same payment rate.

In our example of receiving a 6% payment rate, you’re looking for the lowest APR based on that payment rate. Maybe one lender offers you a 6.25% APR, and another a 6.5% APR. The 6.25% APR lender is charging you fewer fees.

A higher APR isn't always a bad thing.

Say you’re buying your " forever home ." If you buy discount points to lower your payment rate, you’ll have a higher APR. But after some years, you’ll make up for the additional fees by paying less in interest thanks to that lower payment rate.

» MORE: How to decide if you should — and can — skip a mortgage

6. Are you doing a hard credit check on me today?

It’s always good to know when the lender is going to perform a "hard" credit check, called a " hard inquiry ." That type of payment history inquiry shows up on your credit report. Lenders need to do this to give you a firm interest rate quote.

When you’re shopping more than one lender, you’ll want these hard credit pulls to occur within a short period of time — say within a few weeks or so — to minimize the impact on your credit score.

» MORE: Get your free credit score today

7. Do you charge for an interest rate lock?

Once you've decided on a lender, you may want to lock in your interest rate. This ensures that it doesn’t go up — though it won't go down, either.

Some lenders charge a fee to lock in your rate. Others don’t — but the cost might be rolled into your interest rate and other lender fees. The answer you’re looking for on a typical home loan (not a construction loan) is: There’s no charge for an interest rate lock .

8. Will I have to pay mortgage insurance?

If you put down less than 20% on a conventional loan, the answer will probably be "Yes." Mortgage insurance on government-backed loans works differently. For example, read more about FHA mortgage insurance .

Even if the mortgage insurance is "lender paid," it’s likely passed on as a cost built into your mortgage payment, which increases your rate and monthly payment. You’ll want to know just how much mortgage insurance will cost and if it’s an upfront or ongoing charge, or both.

Then, ask the lender what your options are. The answer may be just, "Make a bigger down payment."

Or you may find there are other loan programs that you might qualify for that don’t require mortgage insurance.

9. What will my monthly payment be?

You’ve probably asked this question already. But knowing what your monthly mortgage payment will be is kind of key to the whole deal, right? You’ll also want to ask if there is any prepayment penalty if you pay off the mortgage early — for instance, if you sell your home or refinance. The answer should be "No."

» MORE: Calculate your monthly mortgage payment

10. Do you have an origination fee?

An origination fee provides additional profit for the lender beyond what’s built into the interest rate. A good follow-up question: What are all of your lender fees? Be sure to specify "lender fees." They’ll know what you mean because there are other additional costs, which you'll ask about next. 

These costs will be detailed in your official Loan Estimate document and your Closing Disclosure . But the sooner you know what they are, the better you can shop, compare — and prepare — for them.

11. What other costs will I pay at closing?

Fees charged by third parties, such as for an appraisal, a title search, property taxes and other closing costs , are paid at the loan signing. You can also see these costs in your Loan Estimate and Closing Disclosure. 

12. How — and how often — will I be updated on the loan’s progress?

Will you have a single point of contact throughout the mortgage loan process? And how will you be updated on the progress: by email, phone or an online portal? Establishing your service expectations upfront, and seeing just how eager the lender is to meet them, will give a clear point of comparison among lenders.

13. Do I have to sign all the paperwork in person?

A mortgage e-closing is likely to proceed faster than a traditional mortgage closing, and you'll probably be better informed about what’s happening every step of the way.

One other benefit of e-closings: Electronic documents can't be submitted with a missing signature. On a paper document, a missing signature might not be detected immediately, causing headaches and delays.

» MORE: Compare the best online mortgage lenders  

14. How long until my loan closes?

Of course, you want to know what your target closing and move-in dates are so you can make preparations. And just as important: Ask what you should avoid doing in the meantime — like buying new furniture on credit and other loan-busting behavior.

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Manage my mortgage.

Understanding your U.S. Bank mortgage

Learn everything you need to know, including more about your U.S. Bank mortgage login, mortgage payment instructions and payoff information for your U.S. Bank account.

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Frequently asked questions

Get answers you need about your U.S. Bank mortgage.

How do I make my monthly U.S. Bank mortgage payment?

Autopay is a convenient way of making your monthly mortgage payments. Once set up, your payments will be automatically deducted every month from your checking or savings account on the date that you choose. We can help you manage automatic payments, whether you’re setting up or changing existing information.

Online banking steps

For customers with a U.S. Bank demand deposit account (DDA):

For the best online banking experience, we recommend  logging in at usbank.com .

• Choose your mortgage account listed under  Accounts  on the customer dashboard.
• Choose  Set up & edit autopay  on the mortgage account dashboard.
• To Set Up: Choose  Enroll in autopay  and enter the required information, then choose the checkbox if you agree to the terms and select  Enroll .
• To Edit: Select  Payment information , then select  Modify settings . Edit the desired information, then select the checkbox if you agree to the terms and select  Update .
• To Unenroll: Select  Unenroll from autopay , then confirm  Yes  or  No .
• Once the process is complete you will be given a confirmation date of when your draft will be activated.

U.S. Bank Mobile App steps

For the best mobile banking experience, we recommend logging in or  downloading the U.S. Bank Mobile App .

• If you have a U.S. Bank demand deposit account (DDA), choose  View & manage my account .
• If you only have a U.S. Bank mortgage, choose  View, pay & manage my account .
• To Set Up: Choose  Enroll in autopay  and enter the required information, then select the checkbox if you agree to the terms and select  Enroll .
• To Edit: Choose  Payment information , then select  Modify settings . Edit the desired information, then select the checkbox if you agree to the terms and select  Update .
• To Unenroll: Choose  Unenroll from autopay , then confirm  Yes  or  No .
• Once the process is complete, you’ll receive a confirmation date of when your draft will be activated.

Additional information:

Please have your checking account and routing number for this process. Once a checking or savings account is entered for payment, it will be saved in the site. You will not be able to enroll in or modify autopay if the account is past due. This information may be unavailable if the account is past due. 

You’ll be notified by mail when the first payment is drawn. If your debit lands on a holiday or weekend, we’ll credit your loan the following business day. Otherwise, payments are posted the same day.

For assistance from a customer service representative, call 800-365-7772 Monday through Friday from 7 a.m. to 8 p.m. CT and Saturday from 8 a.m. to 2 p.m. CT.

Pay by phone

You could choose to make your monthly mortgage payment by phone either through our automated voice response system or with the help of a customer service representative. For payments made by phone, we credit the payment the same day (the next day if made on a weekend or holiday).

Call  800-365-7772  to make a payment by phone. You’ll be asked to provide your checking or savings account number and your bank’s routing number. Your mortgage payment will be electronically drafted from your loan the same day.

Pay by mail

If you choose to pay your monthly mortgage amount by mail, U.S. Bank Home Mortgage will send you a monthly billing statement with a payment slip. Detach the payment slip and mail it back, with your payment, in the enclosed envelope. Include your mortgage loan number on your check.

For overnight deliveries, please send your payment to:

U.S. Bank Home Mortgage ATTN: Payment Processing 3751 Airpark Drive Owensboro, KY 42301

We’ll apply your payment on the day it’s received. We don’t consider the postmark date or adjust for mail delays. Therefore, please allow at least seven business days for mailing. Allow 10 or more days during holidays and other high-volume mailing times, such as tax season.

For a hassle-free payment method, choose autopay. It’s easy to set up, and you could schedule automatic payments without worrying about any checks, stamps or mailing delays.

Branch payments

You can also make your mortgage payments at any U.S Bank branch. Please have your billing statement available when making a payment.

We generally credit any payments made at the branch the same day. However, some branches convert their systems to begin processes for the next day earlier than online, typically around 4 p.m. local time. Branches post any payment made after their conversion time the following business day. Also, some branches do not have the capability of posting a mortgage payment directly. These branches must forward payments to mortgage servicing. These payments may also post the following business day. Your receipt will indicate if your payment won’t be posted until the following business day.

Visit  Find a U.S. Bank branch & ATM  to locate a U.S. Bank branch.

How can I save on my next mortgage or refinance?

If you’re an existing customer with a U.S. Bank first home mortgage loan, a U.S. Bank Smartly™ Checking account or an existing Gold or Platinum Checking Package, you may be eligible for a customer credit on the closing costs of your next mortgage. 1 Take 0.25% of your new first mortgage loan amount and deduct it from the closing costs, up to a maximum of $1,000. 2

Whether you’re looking to buy , refinance or use your home’s equity to fund projects you’ve been dreaming about, U.S. Bank offers a broad range of home loan solutions to meet your needs.

Explore loan options

How do I enroll in U.S. Bank mobile and online banking?

• Go to the usbank.com enrollment page .
• Identify your account as Personal and select I have a different account .
• Choose  Mortgage, installment loan or lease, and provide your account number, last 4 digits of your Social Security number, and ZIP code.
• Set up your username and password.
• Enter your email address and select Continue to set up your ID Shield questions and image.
• Choose  Finish, and you’re all set.

Mobile banking steps

• Go to the Get the Mobile App page.
• Enter your mobile phone number and we'll text you a link to download the app to your device.
• Follow the steps and complete enrollment. Note: You will need your account number to complete the process.

How do I access my U.S. Bank tax documents online?

For information and access to tax documents, including your IRS 1098 statement, follow the instructions below or watch this video . You can get to your U.S. Bank mortgage login through online banking or the U.S. Bank Mobile App.

U.S. Bank mortgage login online banking

• Log in to your account.
• Choose  My accounts on the dashboard.
• Choose  My documents .
• Choose the type of document you want to view – Statements, letters & notices or tax documents .

U.S. Bank mortgage login Mobile App

• From the main menu, choose Statements & docs .
• Under My documents , select the document you want to view – Statements, letters & notices or tax documents .
• Choose the related account.

How do I set up paperless preferences for my U.S. Bank mortgage account?

You can get your U.S. Bank mortgage login through online banking or the U.S. Bank Mobile App. It takes one full statement period for the change to take effect.

U.S. Bank mortgage login online banking steps

• From the customer dashboard, select  My accounts , then select My documents .
• Choose  Paperless preferences for your eligible accounts.
• Choose  Save .
• Choose  Paperless preferences .
• Choose  Go paperless for all accounts or select accounts individually.

How do I view my U.S. Bank amortization schedule online?

• Log in to online banking and select your mortgage from the customer dashboard.
• If you are a mortgage only customer, select View, pay & manage .
• If you are a mortgage plus U.S. Bank demand deposit account (DDA) customer, select View & manage .
• Choose  My loan .
• View your Amortization schedule in the dashboard.
• Choose  More details to view the monthly breakdown.
• Choose  Download PDF for a copy of your amortization schedule.

Have additional questions about your mortgage?

Our mortgage experts are available to assist Monday through Friday 7 a.m. to 8 p.m. CT and Saturday 8 a.m. to 2 p.m. CT. 

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rates and program terms are subject to change without notice. Mortgage, home equity and credit products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association. Member FDIC.

Clients may be eligible for this credit with an existing U.S. Bank first mortgage, a U.S. Bank Smartly Checking account or an existing Gold or Platinum Checking Package. A minimum of $25 is required to open a U.S. Bank Smartly Checking account. For a comprehensive list of account pricing, terms and policies see the Consumer Pricing Information disclosure and the Your Deposit Account Agreement . These documents can be obtained by contacting a U.S. Bank branch or calling 800-872-2657 .

To calculate the U.S. Bank Client Credit, take 0.25% of your new first mortgage loan amount and deduct it from the closing costs. For purchase or refinance transactions, the maximum credit is $1,000. Certain mortgages may not be eligible for stated credits. Offer may not be combined with any other mortgage offers and can only be applied once per property within a 12-month period.

Personal Finance

The different types of mortgage loans for homebuyers.

Our evaluations and opinions are not influenced by our advertising relationships, but we may earn a commission from our partners’ links. This content is created independently from TIME’s editorial staff. Learn more about it.

When it comes to purchasing a home, very few people have enough cash on hand to close the deal. This is where a mortgage comes in. A mortgage is a loan used to buy real estate, and it comes in a variety of types, each suited to a certain type of buyer.

Types of mortgages

Home loans are either conforming, meaning they fall within loan limits set by the Federal Housing Finance Agency (FHFA), or nonconforming, meaning they are above those limits. For 2024, depending on geographic area, conforming loans cannot exceed $766,550.

Because nonconforming loans are considered riskier than conforming loans, they often carry more stringent underwriting requirements. Sometimes, mortgage lenders also charge a higher interest rate on a nonconforming loan.

There are two main types of rates for mortgage loans: fixed rate and adjustable rate. Rate refers to the interest rate and these two options refer to whether it stays the same or changes over the life of the loan. Most types of loans (but not all) are available with a fixed or adjustable interest rate option.

Common mortgage options

There are many mortgage options available, and it's important to carefully consider your individual financial situation and goals before choosing one. Things to consider include your credit score, income, debt-to-income ratio, and the amount of down payment you can afford as well as whether you want to purchase mortgage points to lower your interest rate. You should also shop around and compare mortgage lenders for any of the mortgage types below to find the best fit for your needs.

Fixed-rate mortgages

A fixed-rate mortgage is a type of home loan with an interest rate that remains the same for the entire term of the loan. This means that your monthly payments will remain the same, making it easier to budget and plan for the future. Fixed-rate mortgages are available in a variety of terms, such as 15, 20, or 30 years, giving you flexibility to choose a loan that meets your individual needs and goals.

• Fixed monthly payments that make budgeting and financial planning easier.
• Protection against rising interest rates over the life of the loan.
• Advantageous for borrowers who plan to stay in their homes for a long time.
• Higher interest rates and monthly payments than with adjustable rate mortgages (ARMs).
• Can’t take advantage of falling interest rates without refinancing the loan.
• Can be more expensive over the long run, depending on interest rate direction.

Fixed-rate mortgages are generally best for those who value stability and predictability in their monthly housing costs. This includes individuals who have a steady income and want to know exactly how much they'll be paying each month for the life of the loan.

Fixed-rate mortgages are also a good choice for borrowers who plan to stay in their home for a long time, as the stability of the interest rate and monthly payments can provide peace of mind for years to come.

Where to get a fixed-rate loan

Fixed-rate loans are offered by a variety of lenders, including banks, credit unions, and mortgage companies. Some popular lenders include Ally, Bank of America, Chase, and Rocket Mortgage.

Adjustable-rate mortgages (ARMs)

Adjustable-rate mortgages, or ARMs, are home loans that have interest rates that can change periodically, typically semi-annually or annually. ARMs start with a fixed interest rate for a certain period of time, such as five, seven, or 10 years. After this period, the rate can adjust up or down based on market conditions. ARMs usually have interest rate caps that control how much the rates adjust.

• Lower initial interest rate compared to fixed-rate mortgages.
• Opportunity to benefit from falling interest rates since your ARM may also decrease.
• More flexibility, such as lower qualification requirements or larger loans.
• Ability to refinance to a lower fixed-rate loan.
• Interest rate uncertainty since rates can change over time.
• Payments increase due to a higher interest rate on adjustment.
• Expensive refinancing costs if interest rates rise significantly.
• Potential penalties for paying off the loan early.

If you plan to sell your home or refinance your mortgage within a few years, an ARM may be a good option since you can take advantage of the lower initial interest rate during the fixed-rate period. Likewise, if your income varies from month to month or seasonally, an ARM may be a good fit since your monthly mortgage payments may be lower during periods of lower income.

If you expect interest rates to decrease in the future, an ARM may be a good option since your interest rate and monthly mortgage payments may decrease as well. If you plan to pay off your mortgage early, an ARM may be a good fit since you can take advantage of the lower initial interest rate and pay off the loan before the interest rate adjusts.

Where to get a variable-rate loan

Variable-rate loans, like fixed-rate loans, are offered by a variety of lenders, including banks, credit unions, and mortgage companies. Some popular lenders include Bank of America, PenFed Credit Union, PNC Bank, Rocket Mortgage , and Wells Fargo.

Conventional loans

Conventional loans are private, meaning they are not backed by a government agency. They can have a fixed or adjustable interest rate. Conventional loans usually require a higher credit score and a larger down payment than government-backed loans. They have a variety of term lengths, such as 15, 20, or 30 years. Additionally, conventional loans offer more flexibility when it comes to the property type and loan amount.

• Process faster than government-backed loans.
• More flexibility when it comes to property type and loan amount.
• Lower mortgage insurance costs than government-backed loans.
• Lower interest rates if your credit score is high.
• Require a higher credit score and a larger down payment.
• Private mortgage insurance (PMI) required if you put down less than 20%.
• Higher interest rates if your credit score is low.
• Stricter underwriting requirements.

Conventional loans are best for borrowers with a high credit score and a substantial down payment. If you have a credit score of 680 or higher and can put down at least 20% of the purchase price, a conventional loan may be a good option for you.

Conventional loans are also a good choice if you are buying a single-family home, a townhouse, or a condominium, or if you are looking to refinance an existing mortgage. Finally, if you want to avoid paying mortgage insurance for the life of the loan, a conventional loan may be a better option than a government-backed loan.

Where to get a conventional loan

Conventional loans are offered by a variety of lenders, including banks, credit unions, and mortgage companies. Some popular lenders include Wells Fargo, Bank of America, Quicken Loans, and Chase.

Federal Housing Administration (FHA) loans

Federal Housing Administration (FHA) loans are mortgages insured by the federal government that require only a 3.5% down payment and have lower credit score requirements. FHA loans require you to pay mortgage insurance premiums, which protect the lender in case the borrower defaults on the loan. In addition, FHA loans have maximum loan limits and require purchased property to meet safety, soundness, and sanitation standards.

• Down payment as low as 3.5% of the purchase price.
• Easier to qualify for than conventional loans, including lower credit score requirements.
• Competitive interest rates.
• Often eligible for down payment assistance programs.
• Mortgage insurance premiums (MIPs) required.
• Maximum loan limits, which vary by state and county.
• Strict standards for property eligibility.
• FHA loans only available through FHA-approved lenders.

FHA loans are particularly well-suited for first-time homebuyers , those with less-than-perfect credit, and anyone who can’t afford a large down payment. In addition, FHA loans are often eligible for down payment assistance programs, which can help borrowers further reduce their out-of-pocket costs. For those who wish to refinance their existing mortgage, FHA refinance loans often have more lenient qualification criteria than conventional refinance loans.

Where to get an FHA loan

FHA loans are offered by FHA-approved lenders such as banks, credit unions, and mortgage companies. Some popular lenders include Quicken Loans, Wells Fargo, and Bank of America. You can also search for FHA-approved lenders on the U.S. Department of Housing and Urban Development (HUD) website .

Department of Veterans Affairs (VA) loans

VA loans are home loans guaranteed by the U.S. Department of Veterans Affairs for eligible veterans, active-duty military members, and spouses. These loans offer a range of benefits, including no down payment, no private mortgage insurance, and competitive interest rates.

• No down payment and 100% financing for eligible borrowers.
• No mortgage insurance required.
• Lower interest rates than conventional loans.
• Flexible credit requirements, including lenient credit score requirements.
• Refinancing options, including the VA streamline refinance and cash-out refinance.
• Funding fee, a significant one-time charge based on the loan amount.
• Strict requirements for the condition of the property being purchased.
• Limited inventory of homes compared to conventional loans.
• Longer time to process, a disadvantage in competitive real estate markets.
• Less initial equity due to no down payment.

VA loans are designed to help veterans and military personnel achieve homeownership and provide them with a range of financial benefits. They also may be a good option for those who want to refinance an existing mortgage or who experience financial hardship and require additional assistance.

Where to get a VA loan

VA loans are only available through VA-approved lenders, such as banks, credit unions, and mortgage companies. Some popular VA-approved lenders include Veterans United Home Loans, Navy Federal Credit Union, and USAA. You can also search for VA-approved lenders on the VA website .

United States Department of Agriculture (USDA) loans

USDA (United States Department of Agriculture) loans are government-backed fixed-rate mortgages designed to help low-to-moderate-income borrowers in rural areas purchase a home. USDA loans have flexible property requirements that allow for the financing of certain types of rural properties, including single-family homes, townhouses, and some condominiums.

• More relaxed credit requirements.
• No mortgage insurance premiums.
• No down payment required.
• Low interest rates.
• Loan availability in certain rural and suburban areas.
• Geographic restrictions that typically do not include urban areas.
• Income limits designed to help low- to moderate-income borrowers.
• Strict property requirements.
• Funding fees similar to VA loans.
• Longer processing times.

USDA loans are designed to help low- to moderate-income borrowers who may not be able to qualify for other loan programs. This typically means people in rural or selected suburban areas who do not have money for a down payment and require a low-interest loan to be able to afford a home.

Where to get a USDA loan

You must apply for a USDA loan through a USDA-approved lender. You can find a list of approved lenders on the USDA website or by contacting your local USDA office. The lender will review your financial information and determine whether you meet the eligibility criteria for a USDA loan.

Other types of mortgage loans

High-balance loans.

High-balance loans, or conforming high-balance loans, are for home buyers in high-income areas. They exceed FHFA conforming loan limits but meet local loan limits. Unlike jumbo loans, high-balance loans are backed by Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corp.). High-balance loans vary by county, and limits are set by FHFA.

Jumbo mortgages

Jumbo mortgage loans exceed the conforming loan limits set by FHFA. Jumbo loans are used to finance large, luxury homes or properties in high-cost areas where the average home value exceeds the national and local conforming loan limit. Jumbo loans often come with stricter qualification requirements and higher interest rates than conventional loans. For those who don’t qualify for a high-balance loan, a jumbo loan may be appropriate.

Reverse mortgages

Reverse mortgages allow homeowners who are 62 years of age or older to convert a portion of their home's equity into cash. Unlike with a traditional mortgage, you don’t make monthly payments to the lender. Instead, the lender makes payments to you, which can be received as a lump sum, monthly payments, or a line of credit. The loan is repaid when you sell the home, move out, or pass away. The amount of money you can borrow with a reverse mortgage is based on your age, the value of the home, and current interest rates.

Construction loans

Construction loans are used to finance the construction of a new building or the renovation of an existing one. Unlike traditional mortgage loans, which are typically used to purchase already-built homes, construction loans provide funding for the construction process itself. This type of loan is typically short-term, with a repayment period of one year or less, and it may require you to make interest-only payments during the construction phase. Once the construction is complete , you can either pay off the loan in full or convert it into a traditional mortgage loan.

Interest-only mortgages

Interest-only mortgages require the borrower to pay only the interest on the loan for a set period of time, typically five to 10 years. This means that the monthly payments are lower than with a traditional mortgage, but you are not paying down the principal balance of the loan. After the interest-only period ends, you must start making payments on both the principal and interest. This type of mortgage can be risky as you may not be able to afford the higher payments once the interest-only period ends.

Portfolio loans

Portfolio loans are not typically sold to investors in the secondary market like other mortgage loans. Instead, the lender holds onto the loan and manages it as an asset. Portfolio loans are often used for borrowers who may not qualify for a traditional mortgage due to factors such as self-employment, non-traditional income, or a unique property type. These loans can offer you more flexibility in terms of underwriting criteria and may be customized to fit your specific needs.

Renovation mortgages

Renovation mortgages allow you to finance the cost of renovations and repairs into your mortgage. This type of mortgage is typically used by homebuyers who are looking to purchase a property that needs significant repairs or upgrades, as well as homeowners who want to make improvements to their existing homes. Renovation mortgages can be a great option if you want to make upgrades to your home but don't have the cash on hand to pay for the renovations upfront.

Nonqualifying loans

Nonqualifying mortgage loans, also known as nonQM loans, do not meet the criteria for a conventional or government-backed mortgage, such as a Fannie Mae or Freddie Mac loan. These loans are typically offered by alternative lenders and may have different requirements, such as higher interest rates or lower loan-to-value ratios. Nonqualifying loans are often used by borrowers who have poor credit or cannot meet the strict requirements of conventional mortgages. However, they can be riskier for borrowers and may lead to higher costs over time.

ITIN loans are loans designed for individuals who do not have a Social Security number but have an Individual Tax Identification Number (ITIN). These loans are often used by nonresidents, foreign nationals, and undocumented immigrants to buy a home , start a business , or finance other goals in the United States. Since ITIN holders are not eligible for traditional loans without a Social Security number, ITIN loans offer an alternative source of funding. However, ITIN loans often come with higher interest rates and stricter eligibility requirements than traditional loans.

Professional loans

Professional mortgage loans are specifically designed for self-employed professionals such as doctors, lawyers, architects, chartered accountants, and others. These loans are aimed at meeting the financial needs of self-employed professionals, such as funding to expand their business, purchase equipment, renovate their workspace, or meet any other professional requirements. The loan amount, interest rate, and repayment terms vary depending on the lender and the borrower's creditworthiness and financial history.

What to consider before choosing a mortgage

When you are selecting a mortgage, first determine how much you can afford to pay each month. This will help you decide on the loan term and interest rate that work best for your budget. Consider the type of mortgage, including whether you want a fixed-rate or adjustable-rate loan. Other important factors include the down payment, closing costs , and any fees associated with the loan. It's also a good idea to shop around and compare different lenders to find the best deal. Finally, make sure you read and understand all the terms and conditions of the mortgage before signing on the dotted line.

TIME Stamp: Understand and consider the possibilities

Take time to understand all of your mortgage options before deciding on the type of mortgage that is best for you. In addition to mortgage type, it’s also important to compare offers from different mortgage lenders.

Fixed-rate mortgages offer a stable interest rate over the life of the loan, while adjustable-rate mortgages have interest rates that can change periodically. Government-backed loans may offer lower down payment requirements or more lenient credit score requirements while conventional loans may offer more flexibility and faster processing.

Consider your financial situation and long-term goals as well as the pros and cons of each type of mortgage loan available to you. Finally, consult with a trusted financial advisor or mortgage professional to determine the best option for your specific needs.

Frequently asked questions (FAQs)

How much income should go to your mortgage.

Experts recommend that you spend no more than 28% of your gross monthly income on housing expenses, including your mortgage payment, property taxes, and homeowners insurance. This is known as the "front-end ratio." Additionally, experts recommend that you spend no more than 36% of your gross monthly income on all debt payments, including your mortgage, credit card payments, car loans, and other debts. This is known as the "back-end ratio."

What is a second mortgage?

A second mortgage is a type of loan that lets you borrow against the equity in your home. It's called a second mortgage because it's in addition to the first mortgage that you already have. This type of loan can be useful if you need to access cash for things like home improvements, debt consolidation, or major expenses.

Which credit score do mortgage lenders use?

Mortgage lenders typically use a version of the FICO score when evaluating a borrower's creditworthiness. However, there are different versions of the FICO score available, and lenders may use one or a combination of them to make their lending decisions. Lenders often consider additional factors beyond credit scores when determining mortgage eligibility, such as income, employment history, and debt-to-income ratio.

What are the 5 Cs of mortgage lending?

The five Cs, or characteristics, of mortgage lending are:

• Character : The borrower’s track record when it comes to paying back loans.
• Capacity : The borrower's ability to repay the loan.
• Capital : The borrower's financial assets.
• Collateral : The property being purchased.
• Conditions : Purpose of the loan, interest rate, loan amount, and other terms and conditions of the mortgage.

The information presented here is created independently from the TIME editorial staff. To learn more, see our About page.

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Little relief: Mortgage rates ease, pulling the average rate on a 30-year home loan to just below 7%

A sale sign stands outside a duplex on the market Friday, May 24, 2024, in downtown Denver. On Thursday, June 6, 2024, Freddie Mac reports on this week’s average U.S. mortgage rates. (AP Photo/David Zalubowski)

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LOS ANGELES (AP) — The average rate on a 30-year mortgage dipped to just below 7% this week, little relief for prospective homebuyers already facing the challenges of rising housing prices and a relatively limited inventory of homes on the market.

The rate fell to 6.99% from 7.03% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.71%.

Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their home loans, also eased this week, lowering the average rate to 6.29% from 6.36% last week. A year ago, it averaged 6.07%, Freddie Mac said.

Mortgage rates are influenced by several factors, including how the bond market reacts to the Federal Reserve’s interest rate policy and the moves in the 10-year Treasury yield, which lenders use as a guide to pricing home loans.

Yields eased this week following economic data showing slower growth. Signs that the economy is cooling can drive inflation lower, which could persuade the Federal Reserve to lower its short-term interest rate from its highest level in more than two decades.

The Fed, which is scheduled to hold its next policy meeting next week, has maintained it doesn’t plan to cut interest rates until it has greater confidence that price increases are slowing sustainably to its 2% target. Until then, mortgage rates are unlikely to ease significantly, economists say.

“Overall, we anticipate inflation will continue to slow and will allow mortgage rates to decrease to around 6.5% by the end of 2024, early 2025,” said Ralph McLaughlin, senior economist at Realtor.com.

The average rate on a 30-year mortgage remains near a two-decade high, adding hundreds of dollars a month in costs on a home loan, limiting homebuyers’ purchasing options.

Elevated mortgage rates dampened home sales this spring homebuying season. Sales of previously occupied U.S. homes fell in March and April as home shoppers contended with rising borrowing costs and prices.

As rates have ticked higher, so have the monthly payments home shoppers need to take on when applying for a mortgage.

The national median monthly payment listed on home loan applications was $2,256 in April, a 2.5% increase from the previous month and 6.8% higher than what it was a year earlier, according to data from the Mortgage Bankers Association.

( Getty Images )

6 Different Types of Home Loans: Which One Is Right for You?

If you’re a first-time homebuyer shopping for a home, odds are you should be shopping for mortgage loans as well—and these days, it’s by no means a one-mortgage-fits-all model. You’ll want to get and understanding of all the basics, with mortgage 101 .

Where you live, how long you plan to stay put, and other variables can make certain mortgage loans better suited to a home buyer’s circumstances and loan amount. Choosing wisely between them could save you a bundle on your down payment, fees, and interest.

Many types of house loans exist: conventional loans , FHA loans , VA loans, fixed-rate loans, adjustable-rate mortgages, jumbo loans, and more. Each mortgage loan may require certain down payments or specify standards for loan amount, mortgage insurance, and interest.

Types of mortgage loans: What to know about types of house loans

To learn about all your homebuying options, check out these common types of mortgage loans and whom they’re suited for, so you can make the right choice. The type of mortgage loan that you choose could affect your monthly payment.

Fixed-rate loan

The most common type of conventional loan, a fixed-rate loan prescribes a single interest rate—and monthly payment—for the life of the loan, which is typically 15 or 30 years. The interest rate remains what it is, or stays fixed, for the life of the loan. Compare fixed-rate vs. adjustable-rate mortgages to see what’s right for you.

Right for: Homeowners who crave predictability and aren’t going anywhere soon may be best suited for this conventional loan. For your mortgage payment, you pay X amount for Y years—and that’s the end for a conventional loan.

A fixed-rate loan will require a down payment. The rise and fall of interest rates won’t change the terms of your home loan, so you’ll always know what to expect with your monthly payment.

That said, a fixed-rate mortgage is best for people who plan to stay in their home for at least a good chunk of the life of the loan; if you think you’ll move fairly soon, you may want to consider the next option.

Adjustable-rate mortgage

Unlike fixed-rate mortgages, adjustable-rate mortgages (ARM) offer mortgage interest rates typically lower than you’d get with a fixed-rate mortgage for a period of time—such as five or 10 years, rather than the life of a loan. But after that, your interest rates (and monthly payments) will adjust, typically once a year, roughly corresponding to current interest rates. So if interest rates shoot up, so do your monthly payments; if they plummet, you’ll pay less on mortgage payments.

Right for: Homebuyers with lower credit scores are best suited for an adjustable-rate mortgage. Since people with poor credit typically can’t get good rates on fixed-rate loans, an adjustable-rate mortgage can nudge those interest rates down enough to put homeownership within easier reach. These home loans are also great for people who plan to move and sell their home before their fixed-rate period is up and their rates start vacillating. However, the monthly payment can fluctuate.

While typical home loans require a down payment of 20% of the purchase price of your home, with a Federal Housing Administration, or FHA loan, you can put down as little as 3.5%. That’s because Federal Housing Administration loans are government-backed.

Right for: Homebuyers with meager savings for a down payment are a good fit for an FHA loan. The FHA has several requirements for mortgage loans. First, most loan amounts are limited to $417,000 and don’t provide much flexibility. FHA loans are fixed-rate mortgages, with either 15- or 30-year terms. Buyers of FHA-approved loans are also required to pay  mortgage insurance —either upfront or over the life of the loan—which hovers at around 1% of the cost of your loan amount.

If you’ve served in the United States military, a Veterans Affairs or VA loan can be an excellent alternative to a conventional loan. If you qualify for a VA loan, you can score a sweet home with no down payment and no mortgage insurance requirements.

Right for:  VA loans are for veterans who’ve served 90 days consecutively during wartime, 180 during peacetime, or six years in the reserves. Because the home loans are government-backed, the VA has strict requirements on the type of home buyers can purchase with a VA loan: It must be your primary residence, and it must meet “minimum property requirements” (that is, no fixer-uppers allowed).

Another government-sponsored home loan is the USDA Rural Development loan , which is designed for families in rural areas. The government finances 100% of the home price for USDA-eligible homes—in other words, no down payment necessary—and offers discounted mortgage interest rates to boot.

Right for: Borrowers in rural areas who are struggling financially can access USDA-eligible home loans. These home loans are designed to put homeownership within their grasp, with affordable mortgage payments. The catch? Your debt load cannot exceed your income by more than 41%, and, as with the FHA, you will be required to purchase mortgage insurance.

Bridge loan

Also known as a gap loan or “repeat financing,” a bridge loan is an excellent option if you’re purchasing a home before selling your previous residence. Lenders will wrap your current and new mortgage payments into one; once your home is sold, you pay off that mortgage and refinance.

Right for:  Homeowners with excellent credit and a low debt-to-income ratio , and who don’t need to finance more than 80% of the two homes’ combined value. Meet those requirements, and this can be a simple way of transitioning between two houses without having a meltdown—financially or emotionally—in the process.

Jamie Wiebe writes about home design and real estate for realtor.com. She has previously written for House Beautiful, Elle Decor, Real Simple, Veranda, and more.

Twitter Follow @jamie__wiebe

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Should you use home equity to pay for a wedding? Here's what experts say

By Jake Safane

Edited By Angelica Leicht

June 7, 2024 / 12:48 PM EDT / CBS News

Weddings are meant to be fun, joyous occasions, but the financial aspects of getting married can be stressful. Planning for the big day is also getting more difficult as inflation continues to put pressure on Americans' budgets. For example, the average cost of a wedding in the US was $35,000 in 2023, an increase of $5,000 from the year prior, according to The Knot . And, finding room in the budget to cover this amount isn't easy for many people. 

While about half save up for a wedding in advance, nearly a third say they're optimizing credit cards to pay for a wedding in 2024, according to a survey from Zola . In some cases that means using credit card points to cover costs, but it can also mean other things like opening new credit cards, which can be an expensive way to pay for a wedding. After all, the average credit card interest rate is over 21%, according to the Federal Reserve .

But ne possible way to finance a wedding at a lower interest rate is to use your home equity . While credit card rates average in the double digits, the average home equity loan and home equity line of credit (HELOC) interest rates are between about 8% and 9% currently. But even at that comparatively low rate, does it make sense to borrow against your home's equity to pay for a wedding? 

Find out how affordable the right home equity loan could be today .

Experts generally caution against using your home equity to cover wedding expenses, as you're not only taking on debt but are putting your home up as collateral for the financing.

"In doing so, you would basically be putting your house — the largest asset most people have — on the line, which is not smart," says Michael Micheletti, chief communications officer at Unlock Technologies.

That said, there are times when it could make sense to use your home equity to pay for a wedding — and times when you shouldn't. Here's what you should know.

When it could be worth using home equity to pay for a wedding

If you're determined to borrow money to pay for a wedding, there can be situations where using home equity might make sense above other options, like using multiple credit cards.

For example, "a HELOC offers the advantage of paying from one source vs. taking out different loans or borrowing from family. But be mindful of the new monthly payment, as going into a marriage with additional debt might cause some stressors," says Rose Krieger, senior home loan specialist at Churchill Mortgage.

Also, borrowing from multiple sources — like using several credit cards and taking out a personal loan — could hurt your credit more than if you just opened one new account by borrowing from your home equity, says Krieger.

Borrowing against your home equity to pay for a wedding could also make sense in situations where you're able to quickly pay off the loan without hurting your finances.

"It could potentially work if the borrower has a tremendous amount of equity in their home, and they plan on selling the home for a profit. They may intend to buy another home for a much lower price. If that's the case, the equity in the home could pay for the wedding without a decade of payments to follow," says Don Grant, a CFP Board ambassador.

Similarly, there could be circumstances where you don't lose any money by borrowing if you can earn more on your cash elsewhere.

If the home equity interest rate is lower than the risk-free rate of return — often considered to be the 10-year Treasury rate — and the loan can be paid off in under 12 months, it could make sense, says Nicky Amore, a CFP Board ambassador.

However, this is rare, and Amore generally does not think using home equity to pay for a wedding is in your best interest.

Compare your home equity loan options and get started on a preapproval now .

When it might not be worth using home equity to pay for a wedding

While using your home equity to pay for wedding costs sometimes works out, in many cases, it's unnecessary to put yourself in debt like this.

"This is one of those situations whereby I need to tell my client what they need to hear, not what they may want to hear," says Grant.

While some debt enables you to potentially improve your finances, such as taking out a mortgage for a house that might appreciate in value, one-time events, like weddings, generally don't provide the same benefit.

"When a home is leveraged to raise money for a use that does not grow in value or create future revenue, it places the borrower at risk of potentially losing their home if there were a job loss or other financial emergency. That is not the way a couple should position themselves at the beginning of a lifetime relationship," says Grant.

You might be digging yourself a hole, even if you get lots of monetary wedding gifts to help offset the borrowing costs — especially when accounting for the fees and initial interest costs of taking out a home equity loan or HELOC .

Plus, you could face additional costs due to tapping into your home equity, such as if a market downturn then causes your equity to fall below 20%, which could require you to add private mortgage insurance (PMI), notes Grant.

The bottom line 

Using your home equity to pay for a wedding can be risky and expensive, even if there are interest rate cuts that bring down financing costs in the future. However, there are occasionally situations in which it makes sense or is at least better than alternatives, like racking up wedding expenses on your credit card without paying the card off each month.

More from CBS News

How to get help with your credit card debt, according to experts

Should you use home equity to buy a car? Experts weigh in

On a tight budget? How to get rid of your credit card debt quickly

What's the maximum you should spend on long-term care insurance? What experts say