An assumable mortgage allows a home buyer to not just move into the seller's former house but to step into the seller's loan, too. This means that the remaining balance, repayment schedule and rate will be taken over by the new owner.
When mortgage rates are high, assumable mortgages can be particularly attractive to buyers, who could stand to save thousands by taking over a home loan at an interest rate below what’s currently on offer. Picture a home purchased in November 2016, when rates hovered around 4%. Someone buying that home with an assumable mortgage in May 2024 could save about 3 percentage points on their rate.
Only government-backed mortgages — loans backed by the Federal Housing Administration, U.S. Department of Agriculture and U.S. Department of Veterans Affairs — can qualify as assumable mortgages. However, in addition to taking on the home’s remaining debt, the buyer will likely have to pay off the difference between the mortgage balance and the home’s current value. This could necessitate a second mortgage.
Here’s how assumable mortgages work, and the advantages and disadvantages for buyers and sellers.
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