You relative will have to qualify with the lender and pay an assumption fee. If the assumption fee, which is probably hefty, is more than the difference between today's rate and the 5.5% on a monthly payment for more than 2 years, then it might not be worth it depending on how long they plan to keep the property. Also, this relative will not be able to take the tax advantages unless the lender recognizes him as the borrower. Be aware, that selling to him on paper without the written permission of the lender will trigger a "due on sale" clause and he will have to get a new loan. Also, to protect yourself, you must make sure the lender completely removes you from all responsibility. In most cases, if the new borrower defaults, they can still go back on you, so get the removal in writing. If this relative is a first-time buyer, meaning he hasn't made a property purchase in the last 2 or 3 years, he should look into some of the first-time buyers programs that will give a reduced rate. A lot of mortgages say they are not assumable, but I think you will find that if you go to the bank, they will work with the relative.
There is another way, but it is complicated and you will want to speak with a CPA with regard to tax consequences for all parties. It is called a wrap around mortgage. I think you will still have to keep your name on the deed to the house, though, in order to not trigger the "due on sale" clause. Start with the bank and please don't try to circumvent them. It could blow up on you. The difference between a 5.5% and todays rate is substantial, so he should try it.
· 1 decade ago