Assumable Mortgage

Assumable Loan Definition !

Assumable mortgage is the type of financing arrangement that allows you to transfer the outstanding mortgage and its from the current owner to the buyer. The buyer can avoid having his.her own mortgage through assuming the remaining debt of the owner. Here the transfer of the mortgage is done without changing the terms of the original mortgage. Hence, the third party takes over the remaining payments on the mortgage and becomes legally responsible for the mortgage terms.

However, it is important that the original mortgage permits assumption and the bank must approve the assumption as well as the person assuming the mortgage.

The bank would only approve the buyer to assume the mortgage only if you have sufficient assets and credit worthiness. Along with that, the buyer who is assuming the mortgage may have to pay a fee to the bank for settlement of the transaction.

There are Some of the Interest Apects of Assumable Mortgages -

  • One of the great advantage in taking up an assumable mortgage is getting the lower rate of interest than that of what is currently available in the market.
  • Banks often approve the assumable mortgages more quickly than a new loan and settlement charges.
  • If the interest rate have risen, then the mortgage rate of the seller may be more attractive for the buyer than opting for the new loan.

In today’s scenario, where buying home is way too expensive assumable mortgages plays an important role. It makes a relevant alternative to the traditional techniques of mortgages. In case, there is an increase in interest rate then assuming the seller’s mortgage would help you in saving the amount you might be required to pay as an interest on ne mortgage. However, there is just one risk on part of seller that if the buyer were to default on the loan, then the  seller will be help responsible for the recovery of the loan. Thus to avoid the risk, seller should make sure that he/she release their liability in writing at the time of the assumption of the mortgage.