When a mortgage is taken over the terms and conditions of the loan can be transferred from one borrower to a new borrower. The term ‘take over mortgage’ is also used to refer to an assumable loan.
Home buyers can assume a seller’s mortgage when purchasing a home with a take over mortgage payment. The approval of the lender is usually required before you can assume a mortgage. With a mortgage assumption the interest rate and the monthly payment schedule is assumed by you. This means you can save a lot with an assumed mortgage, especially if the interest rate on the existing loan is lower than the current rate on new loans. However, lenders can change the loan terms of these mortgages so you should be prepared for that.
Along with the interest rate and the monthly payments, you also inherit the liability of the mortgage. If for instance, you cannot make the payments for the mortgage, the lender will foreclose. If the property sells for less that the balance of the loan, the lender reserves the right to sue you for the difference.
An assumed mortgage is not a free ride either. In order to get a take over mortgage, you still need to undergo a pre-qualifying process. Closing fees will still need to be paid before you can get one of these loans. Also, a take over mortgage requires payment for appraisal costs and title insurance.
For example, a friend of yours wants to sell his home to you for $155,000 and has an assumable loan of $145,000 with 6 percent interest. To take over this mortgage, you only need to put down $10,000 to assume your friend’s home and mortgage. Along with the $10,000 down payment, closing fees are applicable.
Another example is when one of your friends got a loan for $80,000 with 6.5 percent rate fifteen years ago. The loan balance is $70,000. The property is now worth $160,000. For a take over mortgage, you only need to come up with $90,000 plus money for closing costs.
Assumable mortgages have been around the market for years. Because they allowed the consumer a chance to assume a loan with lower interest rates, they became popular.
If you want to take over a mortgage, remember that if a deal sounds too good to be true, it probably is. Sellers offering cheap assumable loans are also offering something of significant value. Sellers are likely to charge more for their houses. This could mean that you would have to come up with more funds to cover the difference between the asking price and the loan balance.
However, the assumability feature can also give you a chance to cash out later, especially since the property you are assuming could increase in value with the growing rates over time.