Marty Searing
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Assumable Mortgage
Assumable Mortgage - An assumable mortgage is a mortgage that can be transferred with no change in terms. It allows you to take over a mortgage on a home you are buying or allows a buyer to take over your mortgage if you are selling your house. If an assumable mortgage is transferred, the buyer assumes all responsibility for repayment. The advantage of this is that you assume a mortgage with a lower interest rate than current rates, without paying high closing costs. Assumable mortgages can make a property more desirable during times of rising interest rates, since the new buyers payments are at the original rate.

When an mortgage is transferred, the buyer will assume all responsibility for repayment. The lender must sign off on the transfer of the mortgage. The seller will need to get a written release from lender, showing that they have no legal obligation to make further payments.

Neither the home buyer or the seller decides if the current mortgage should be assumable. It is a feature of the mortgage. Whether a mortgage has an assumable feature is usually evidenced in the Loan Commitment Letter and/or the Mortgage Note. Although the assumption feature was very common decades ago, most mortgages written today are not assumable.

Lenders will often have a minimal charge assocciated with an Assumable Mortgage to cover the documentation, and recording of the transfter. In most cases the buyer or person assuming the mortgage will still need to qualify for the loan based on credit, income and other factors.

Assuming other borrowers mortgages has not been a popular thing to do for the past 5 to 6 years because there has been an environment of declining rates during that period. If an environment of increasing rates starts to occur, assuming another borrower's loan will become more and more popular for homebuyers. The reason being simply that these existing loans will be at interest rates that are unavailable on the current market.

Since 1989 for FHA and 1988 for VA loans, assumption requires approval of the agencies. Any FHA or VA loans closed before then and assumed since, only require the approval of the owner, but the owner remains responsible if the buyer defaults.

An Assumable mortgage requires the lender’s approval. When you assume a mortgage you inherit both its interest rate and monthly payment schedule. An Assumable Mortgage can mean big savings if the interest rate on the existing mortgage is lower than the current rate on new loans - the lender, though, can change the loan’s terms. Assumable mortgages aren’t a free ride: you still need to qualify for the loan and you have to pay closing fees, including the costs of the appraisal and title insurance.

In an assumable mortgage, the lender will also hold the seller liable for the loan. For example, if you default and the lender forecloses, but the property sells for less than the balance remaining on the loan, the bank may sue the seller for the difference.

Scenario #1:
John wants to sell his home for $95,000 and has an assumable $90,000 loan at 7% interest. Marvin wants to buy John’s house. Marvin just needs to put down $5,000 (plus closing fees) to take over John’s home and mortgage.

Scenario #2:
Jimmy got an assumable loan 15 years ago for $80,000 at 6.5% interest. The loan balance today is $70,000. Kristen wants to assume the property, which is now worth $160,000. Kristen must raise $90,000 (plus money for closing costs) to close the deal.

Assumable mortgage - "My father has an assumable mortgage. What is this, and how can it affect my payments?"

An assumable loan means that someone else other than the borrower and take over the loan. The benefit on this is that the terms of the loan stay the same, payment, rate and term.


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