A mortgage assumption is a contractual agreement wherein a home purchaser assumes the sum total of a seller’s requirements on his mortgage, including the full balance, the repayment of same, the length of the mortgage and the rate of interest. Such an assumption is not at all the same as purchasing a home subject to the mortgage. The approval of the current lender is always necessary when entering into a mortgage assumption. This is due to the fact that you are taking over the liability from the present homeowner.

One of the unique risks involved in an assumable mortgage can exist for the party that is selling the home. This type of loan can find the seller held liable for the loan even after the loan assumption has taken place. For instance, in a situation where the buyer to default on the mortgage loan, it could end up leaving the seller responsible for whatever amount the lender is not able to recover. To help minimize this risk, sellers have the option of releasing their liability in writing at the time of the agreement. Also, since the buyer is receiving great benefit from the mortgage assumption, he must understand that the seller should receive some advantage as well. In general, the advantage to the seller will materialize in a greater price for the house.

As interest rates trend higher, mortgage assumptions become more appealing. For example, if the best rate in the current market is 6% and you discover a home with a mortgage carrying 5%, the assumption of the latter would save a great deal of money. That is, obviously, should both the seller and the lender be amenable to the assumption. In the event of your assuming an existing mortgage, the present mortgagor will be released from liability and you will then be responsible for the prompt repayment of the loan and, should default occur, you would be named in any foreclosure suit.

Alternatively, should you purchase a home subject to a mortgage, the current borrower in not released from responsibility. In purchasing the home, you will take over the monthly payments and, we trust, make them in a timely fashion as stipulated. If the loan should ever go into arrears, the original borrower will be a party to any action or foreclosure. If you had bought the home subject to a mortgage, and the seller had the same arrangement when he purchased it, the very first borrower, at the beginning of the line, would remain liable.