How Smart Buyers Are Getting Pre-Pandemic Mortgage Rates

A mortgage assumption lets a buyer step into the seller’s existing home loan — same loan balance, same interest rate, same repayment terms. It’s a big deal right now because so many sellers are sitting on mortgages locked in at rates far lower than what’s available today (and possibly lower than what we’ll see anytime soon). That makes assumable loans a rare win-win for both sides. Here’s why.

For buyers, the major upside is you can get a far lower interest rate than in the current market.

The downside for buyers is you can only assume the balance on the loan, so any equity the seller has in the property has to come out of your pocket in cash, since you cannot borrow the equity, as you can with a new mortgage loan. So assuming a loan may require a much larger down payment than you were planning for.

Actually, you CAN borrow the equity using a second mortgage. You will likely still have to have a down payment for an assumption.

For sellers, the upside is it makes your home easier to market since multiple purchasers may find your assumable mortgage a very attractive selling point. It may make a potential purchaser choose your house to make an offer on, and may tip the balance between two houses they are trying to decide between.

The downside for sellers (and buyers too) is that assumptions are processed by the servicer of the seller’s mortgage, who are getting paid a small flat fee to do it, rather than a commission-based fee structure as with a new mortgage. This means the servicer has no incentive to make the process go smoothly or quickly for the parties involved.

Keep in mind too that the servicer would rather that low-interest rate loan go away and be replaced with a much higher interest rate loan. So be prepared for an assumption to take longer and be more of a hassle than a new mortgage loan. There is a law pending in Congress to make servicers process assumptions in 45 days, but that is not law yet.

An assumptor is a person that assumes a loan, also known as an assumer.

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