Assumable Mortgages Explained

Assumable mortgages are a unique lending instrument that allows someone else to take over the payments for you. Assumable mortgages are very different from traditional mortgages in a number of different ways. They are also a very rare type of mortgage in today's market. If you can find one, it may be to your advantage to take advantage of it. Here are the basics of assumable mortgages and what they can do for you. 

How They Work

An assumable mortgage allows another party to take over the loan that was originally given to someone else. This can be an alternate way to buy a piece of property. Let's say that you have an assumable mortgage on a piece of property that has been difficult to sell. In order to entice potential buyers you advertise that the property has an assumable mortgage on it. A potential buyer comes along and instead of getting their own loan for the property, they just assume the one that you already have. This can be a big selling feature with a home if you are trying to unload it quickly. 

Benefits of Assumable Loans

  • Simple process- With an assumable mortgage, the process to convert it to another buyer is relatively simple. You will not have to go through the normal closing process that can sometimes take weeks or months. There will be no need to appraise the property again because you are not getting a new mortgage. The lender will most likely have to approve of the new buyer, but as long as they do, the process of moving it into their name is relatively easy.
  • Take advantage of interest rates- Many assumable loans were written many years ago. If they were written at a time when interest rates were lower than they are today, then a new buyer could potentially benefit from that. They will not have to take whatever rate the market dictates to them. They can take over the loan with the low interest rate from the time that the original loan was written. This can make their payment lower and the overall obligation of the loan.
  • Entice buyers- When you are trying to sell a home, nothing brings in potential buyers like an assumable mortgage. People like things that are easy and convenient and an assumable mortgage definitely falls into that category. 

Disadvantages of Assumable Loans

  • Down payments- With assumable loans, the loan will often not be anywhere near the purchase price of the home. Therefore, large down payments are sometimes required which can limit the amount of people that could buy your home.
  • Trouble for seller- Depending on the type of assumable loan that is involved, the seller could have some problems down the road. If the person that takes over the mortgage fails to make their monthly payments, it could come back on the original loan holder. This puts a lot of risk on the seller of the home that they have no control over.