ASSUMABLE MORTGAGE


You've put in an offer on a house. The real estate agent says that the seller of the property has a mortgage on the property that is 'assumable' and it's at a great interest rate. What do you do?

Assumable mortgages are mortgages that can be passed from one owner to another. It can be an advantage to assume a mortgage if the interest rate is very good compared to negotiating a brand new mortgage.

Keep in mind that you cannot assume a mortgage unless you have a big enough down payment to cover the difference between the value of the house and the amount of the mortgage. Otherwise, you are in the situation of negotiating a second mortgage - which you should generally avoid. Second mortgages are often at much higher interest rates and any savings you get from assuming the first mortgage could be lost.

Also remember that when you assume a mortgage you assume it 'as is'. This means that it may not have the options you want, like prepayment privileges and payment frequency options. Read the fine print on any mortgage contract - but especially if you want to assume a mortgage. Be sure it's the best deal for you.