Assumable mortgages are loans that allow a homebuyer to take over a seller’s existing mortgage. This means that a buyer keeps the seller’s repayment period, mortgage balance and, notably, the seller’s lower mortgage rate. Some experts point to this type of loan as a potential way of reviving the struggling housing market.
To take over that seller’s mortgage, a buyer would have to make a cash payment of $200,000 to the seller to compensate for their equity stake. Then, the buyer would take over the sellers’ existing monthly payments on their mortgage. For buyers, $200,000 may be a lot of money to pay upfront. Some take out a second mortgage to cover the equity payment, Tozer said.
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