Assumable mortgages are not very common. The majority of people likely has not heard of it. It is a type of mortgage where a new borrower has the ability to take over the loan that is existing from the current borrower. To put it in simple terms, a new home buyer takes over the mortgage of the home for sale. Terms and conditions do not change for the new home buyer – all terms and conditioners are the same. This includes the mortgage rate. The remaining balance of the mortgage stays the same, along with the remaining time left on the mortgage.
Although it sounds like an assumable mortgage is fairly simple – the someone is effectively just taking over the mortgage for someone else, it is not the simple. To start with, not all loan types are assumable. For example, conventional loans cannot become an assumable loan. This may come as a surprise, but you still have to make a down payment for an assumable mortgage. The amount may be more than you expect. You also still have to apply with the mortgage lender and be sure you are qualified to do so.
Some people like to do an assumable mortgage when interest rates rise. The person who takes over the mortgage has a mortgage rate of what the original mortgage rate was on the house – not what the current going rate is. This can be a great deal of savings for someone, especially if you look at the bigger picture.
Just like any other situation that requires decision making, we want to make sure you look at all of your options and look at what all is involved in an assumable mortgage. You need to also make sure you take into consideration the circumstances of you wanting to apply for an assumable mortgage and any needs you might have with the mortgage.