Assumable Mortgages: Advantages to Buyer & Seller

Here are some of the advantages of assuming an existing mortgage versus applying for a new one:

Mortgage is further into amortization schedule
Lower interest rate loans amortize faster than higher interest rate loans
Lower closing costs than a new mortgage
Easier to qualify than on a new mortgage
No appraisal required

There could also be advantages if you are selling a house which currently has an assumable mortgage on it. With interest rates rising and strong indications that rates will return to their historic range (between 6.5% and 7%) in the next few years, having a mortgage with a sub-5% interest rate could increase the value of your home. How?

When assuming an existing mortgage, the terms remain the same. This means that a buyer five years from now could possibly assume your sub-5% mortgage rather than pay the 6.5% – 7% rate of a new mortgage. (As mentioned above, the borrowers would still need to qualify. However, they would also have to qualify for a new loan.) Many people buy homes based on how the monthly payment fits into their personal monthly budget. An assumable a mortgage could have an impact on what a potential buyer may pay. The point here is that, when rates go up, homes with assumable mortgages will have more value and could sell at higher prices.

Greg Anderson
Metro Denver Real Estate