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Assumable mortgage
A loan that allows a home buyer to take over a seller's mortgage when purchasing a home Assumable mortgages require the lender's approval. When you assume a mortgage you inherit both its interest rate and monthly payment schedule. It can mean big savings if the interest rate on the existing mortgage is lower than the current rate on new loans. You will need to qualify for the loan and you may have to pay closing fees, such as the costs of the appraisal and title insurance. The lender may also hold the seller liable for the loan. For example, if you default and the lender forecloses, but the property sells for less than the loan's balance, the lender may be able to sue the seller for the difference.
Scenario #1:
Joe wants to sell his home for $95,000 and has an assumable $90,000 loan at 7% interest. Mark wants to buy Joe's house. Mark only has to put down $5,000 (plus closing fees) to take over Joe's house and mortgage."
Scenario #2:
Jim got an assumable loan 15 years ago for $80,000 at 6.5% interest. The loan balance today is $70,000. Karen wants to assume the property, which is now worth $160,000. Karen must raise $90,000 (plus money for closing costs) to close the deal."
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