An assumable mortgage is an agreement where a home buyer takes over the existing mortgage of the seller as long as the lender of the mortgage approves.
With an assumable mortgage, the seller of the property remains secondarily liable for payment of the mortgage unless they are released in writing by the lender.
With an assumption the buyer could save a significant amount on closing costs and perhaps assume a lower interest rate. By assuming the seller’s mortgage, the buyer keeps the existing interest rate on the seller’s mortgage.
Mortgage assumptions were very popular in the 1970s and 1980s when interest rates were rising in to the double digits. Today, however, very few mortgages are assumable since most conventional mortgages must be repaid on the sale of the property.
Also, in an assumption, the buyer has to come up with a considerable amount of cash for the seller at closing – typically the difference between the mortgage balance and the sale price.
