Assumable Mortgages

Assumable Mortgages are not available in the UK but happen occasionally in the US.

In most home buying 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.