Treavor Dodsworth CFP®, CPA, CKA®
#140 - I'd Like Your Home... and Your Mortgage
Mortgage rates have risen very quickly. Per this Y Charts historical chart, 30yr mortgage rates were 5.78% as of 6/16/22 compared to less than 3% a year ago.
This means a $300K 30yr mortgage will have a payment of roughly $500 more per month if you purchase now compared to a year ago. A $500K 30yr mortgage will have a payment of more than $800 more per month if you purchase now compared to a year ago.
Given that rates were low for a prolonged period and now have risen quickly, many home sellers currently have a mortgage with a lower interest rate than a new buyer could get by taking out a new mortgage.
This made me wonder - “Can a new buyer just take over the seller’s mortgage?” I found out it actually is possible in some situations.
If you currently own a home and look at your closing disclosure there should be a question about assumption. Our's reads like this - “If you sell or transfer this property to another person, your lender” and then two options either “will allow, under certain conditions, this person to assume this loan on the original terms.” or “will not allow assumption of this loan on the original terms.”
In other words, it is actually possible to transfer your mortgage to another person in some situations.
I’ll be honest, I know very little about this but it is at least worth an ask. The impact of this would vary dramatically but could easily be $100K+.
On the seller side, if your current mortgage is assumable that may make your property more attractive. On the buyer side, if you can assume a mortgage with a much lower interest rate your costs could be substantially lower.
Make sure to discuss all pros and cons with your lender. Also, if you are the transferer, make sure to follow the necessary steps so that you are no longer liable for the mortgage upon transfer.
Investopedia - Assumable Mortgage
Rocket Mortgage - Assumable Mortgage: What Is It and How Does it Work
Thank you for reading!