An assumable mortgage is 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, because when you assume a mortgage you inherit both its interest rate and monthly payment schedule.
Owning a home is a great way to build wealth and ensure both peace of mind and security for oneself and his or her loved ones. While there are many kinds of mortgages out on the market, few are less understood than an assumable mortgage.
An assumable mortgage is a loan product that can be taken over (or assumed) by another person. For fans of the Sylvester Stallone film, Rocky II, the character Rocky had asked Paulie if he would like to take over the payments on his car. What he was asking was if Paulie would assume the loan.
When a person or couple is engaged in this kind of practice he, she, or they are not getting a brand new mortgage but, instead, are stepping in on a loan that is in the process of being paid. This can be a good thing or a bad thing.
If the loan had been paid regularly but the person who was making the payments can no longer do so due to circumstances that could be financial or logistical (job relocation), then assuming this kind of mortgage would be ideal. Below are some advantages of an assumable mortgage.
If the loan is being assumed from a person who is several payments behind, then the rate could have adjusted upward of several points. In such a case, it might be to the advantage of the new borrower to take on a new loan rather than assume this one.
Assuming a loan can be risky for those who do not exercise proper diligence. If the loan is of a higher interest rate than one can get otherwise, or has an adjustable rate during a period of historically low interest rates, then such assumptions could lead to a payment schedule that could become unnecessarily unmanageable. Below are some risks to consider for assumable mortgages.
For more information on assumable mortgage, call Meridian Mortgage at 317-968-9500 or contact us online.
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