Assumable Mortgage

Financial Dictionary -> Mortgages -> Assumable Mortgage

An Assumable Mortgage is basically buying a house and taking on the previous owner's mortgage as it stood before the sale. So instead of taking out your own mortgage you assume the role of the previous owner and continue payment of their mortgage. Buyers often look for houses with an Assumable Mortgage when
interest rates
are high so they get the low fixed terms which were arranged by the original owner several years back. In a lot of cases there may be a need for a down payment. If an Assumable Mortgage is successfully transferred the buyer then has full responsibility for payment and the original owner is in no way associated with the mortgage from then on.

The usual process involves the seller contacting their lender to see if they meet certain standards and criteria for the transfer. If they are accepted they will be sent a written release fro, their lender stating they will no longer have any responsibility over the mortgage repayment.

It is not always a straight transfer and some Assumable Mortgage lenders may require the new buyer to make several charges or fees before they can take on the mortgage. These can include appraisal costs and the title of insurance. Even if it doesn't suit the new buyer they will also have to take on the same payment schedule, not just the same rates and amounts from the original owner.

To understand how an Assumable Mortgage works when house prices have significantly increased from the initial sale price then use the following made up scenario.

Mark originally purchased his house in 1989 with a $50,000 loan and he has paid off $30,000 of his mortgage so far. The house is now worth $150,000. If Eric wanted to purchase the house and use an Assumable Mortgage he'd have to raise $120,000 to make the sale. He would take on the $30,000 loan that had already been paid.