REAL ESTATE "A TO Z": WHAT IS AN ASSUMABLE MORTGAGE?
Thursday Nov 24th, 2022
When a buyer decides to take responsibility for paying a seller’s existing mortgage, this is often referred to as “assumability”. An assumable mortgage is essentially an agreement between a buyer and seller to take over an existing mortgage debt. The interest rate and the mortgage term all stay the same.
There are several reasons why a buyer might want to assume the seller’s mortgage. Perhaps the seller’s mortgage rate is lower than what the buyer has been quoted for, or the buyer wants to save money on closing costs. As with all mortgages, assumable or not, the borrower must still qualify for the mortgage they are assuming, and the buyer may have to pay a fee to the bank to cover settlement charges. Luckily, assumable mortgages tend to get approved much more quickly than a new loan.
What’s in it for the seller? If a seller puts a home on the market and is offering a lower-rate mortgage, it can make the property much more appealing to potential buyers. However, the seller would risk being liable in the event the buyer defaults on his mortgage within the first 12 months.