Assumable Mortgages

I was recently at the closing table when the attorney pointed out to my client that the mortgage she was closing on was assumable. I had learned my fair share about assumable mortgages in a Mortgages class I took in law school and didn't really think too much about it at the closing table, however, the lower interest rates continue to dip, the more salient I think the issue of assumable mortgages becomes. 

Mortgage rates won't stay this low forever, after all, so when they rise, more and more people will be interested in assuming mortgages that people take out now.

So what is an assumable mortgage and what are the benefits? 

An "assumption" occurs when a home buyer assumes the responsibility for a seller's existing mortgage on the property. Why would a buyer do this instead of just getting their own mortgage? Simple: A low interest rate on the existing mortgage! The true value of the assumption depends on several factors: 

1. The terms of the original mortgage, 
2. Current interest rates, 
3. The necessity (or not) of the buyer to take out a second mortgage to supplement the existing loan balance,
4. The asking price of the property.

While it may be worthwhile to assume the existing mortgage, this might not be wise if the money you would be saving as a buyer is padded into the asking price of the home, for instance, or if you would have to take out a large second mortgage on the property due to the first mortgage being largely paid down. 

As a seller, you MUST work with your mortgage lender ahead of time to ensure that you are released from liability IN WRITING! If not released from liability, you are on the hook if the buyer of your assumed mortgage stops paying! A good Realtor (and good mortgage lender) can help you steer through the muddy waters of assumable mortgages!