Image: Quality Stock Arts / AdobestockAfter five months of declines, existing-home sales increased in November, according to the National Association of Realtors (NAR). While all four sales regions
Does an Assumable Mortgage Make Sense in a High-Interest Market?
Dated: January 16 2024
Image: Ekaterina Senyutina / Adobestock
In a market where mortgage rates are surging, potential homebuyers face a daunting challenge. With the national average for a 30-year fixed-rate mortgage standing at 7.5%, some buyers and sellers are asking about other solutions, such as assumable mortgages.
What Is an Assumable Mortgage?
An assumable mortgage allows the buyer to step into the seller’s financial arrangement, taking over their existing mortgage instead of securing a new one. This means inheriting the seller’s original loan terms, including the interest rate.
Eligibility and Considerations
Unfortunately, most conventional mortgages cannot be assumed, but there are some exceptions. Adjustable-rate mortgages can be assumed outside their fixed period. However, government-backed loans like VA, FHA, and USDA loans are typically assumable, contingent on lender approval. It’s worth noting that lenders may not be inclined to approve an assumed mortgage.
Does It Actually Save Money?
The advantages of an assumable mortgage in a high-interest rate environment are tied to the existing mortgage balance or home equity. For instance, if a home is priced at $450,000 and the seller’s mortgage balance is $300,000, you’ll assume the existing mortgage balance and you’ll need a payment of $150,000 to cover the difference.
Applying for a Second Mortgage
If you don’t have cash to cover the difference, you’ll need to get a second mortgage. Depending on your credit profile and current rates, the interest rate could be much higher than the assumed loan.
In most cases, an assumed mortgage isn’t realistic, but there are always exceptions. The ideal scenario for an assumed mortgage is a fairly recent purchase with a low-interest rate, where the price of the home isn’t significantly more than the loan.
*Loyal* *Beach Lover* *Yankees Fan* *Music Lover* *Book Lover* As your Realtor it is my job to take away all your stress and worry throughout each step of the process while buying or selling a....
Latest Blog Posts
Image: Clickmanis / AdobestockPlants are a refreshing interior design accent that brings in a bit of greenery, and some varieties help purify the air. Even if you don’t have a green thumb,
Image: Skynesher / iStockIf you’ve been contemplating selling your home, now is the moment to turn those thoughts into action. Despite the shifting dynamics in the real estate market, the