Recently, our good friend Pat Zaby, through his customer contact system InTouch, shared some great information on the advantages of assuming a mortgage.
Mr. Zaby explained 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.