Is an Assumable Mortgage Right for You?

If you are a seller with an assumable mortgage, the buyer of your home can assume the payments on the loan balance you have remaining at that time. But is this a good idea?

Some loans are set up to be assumable; mortgages such as FHA loans, for example, come with an assumption clause, meaning that a buyer can take over your monthly mortgage payments. On the other hand, conventional mortgages – those created under Fannie Mae or Freddie Mac guidelines – will come with what is called a “due-on-sale” clause. This means that when you sell the property, if there is still a balance on the mortgage, the mortgage must be paid off at that time.

Why would you want your buyer to assume payments? It’s usually about the interest rate on your mortgage. If, for example, your FHA mortgage interest rate is in the 3% range, and the current market is offering rates above that, you can make your property more attractive relative to your competition by showing buyers that there is a financial incentive to purchasing your home; the buyer can assume your mortgage at that lower interest rate…providing your lender allows it.

In fact, to assume your mortgage, the buyer would still have to go through a qualification process with the lender, and your sale would be contingent on a successful outcome of this process.

An assumable mortgage does have its benefits, but it may not be right for you. Discuss the pros and cons with your mortgage advisor.