Assumable
mortgages are not available in the UK but happen occasionally
in the US.
In most homebuying cases, a potential buyer goes to the bank and
takes out a mortgage for the purchase of a property. But with
an assumable mortgage, the seller transfers the home loan to the
buyer and they take on responsibility for repaying it.
To do this, the existing mortgage will need to be "assumable"
or transferable. If it is, the lender will charge
a fee for the buyer assuming the loan.
The
buyer will then need a personal loan or other finance for the
difference between the purchase price and the outstanding mortgage.
The major driving force behind assumptions is the lower
interest rate on the assumed mortgage relative to current
market rates.
If
the home seller has a 5.5 % mortgage, for example, and the best
the buyer can get in the current market is 7%, both parties can
be better off if the buyer assumes the 5.5% loan. An assumption
also avoids the settlement costs on a new mortgage.
As mortgage rates are increasing in the US, assumptions could
become more popular because buyers will be keen to benefit from
the low rates previously available.
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