Is an Assumable Mortgage a Good Way to Beat High Mortgage Rates in Baltimore County?

With mortgage rates continuing to be significantly higher than they have over the last decade some Baltimore County homebuyers are trying to find out-of-the-box ideas to afford a home purchase. One of these possibilities is the use of an assumable mortgage loan.

What an assumable mortgage is

Assumable mortgages are not a brand new thing but haven't really been used in the recent past. They are now picking up attention again as mortgage interest rates remain much higher compared to the last decade. An assumable mortgage gives the borrower the ability to take over the existing mortgage loan from a current homeowner selling a property.

The person purchasing the property will take on the mortgage currently on the property with the same interest rate and remaining payment. And the same mortgage balance. The new homeowner is assuming the mortgage loan from the previous homeowner.

The details of how an assumable mortgage works

When explaining an assumable mortgage it seems simple enough but there is one factor that seems too good to be true. Simply taking over the previous mortgage loan and not paying fair market value for the home. Taking on the remainder of the current homeowner's mortgage does not mean that the home buyer does not have to pay the current value for the home. Assuming a mortgage will not cover the full purchase price. This will need to be made up with a down payment or a second loan.

So why would a buyer choose to go with an assumable mortgage if they still need to make up the difference between the money the previous owes on their mortgage and the current value of the home?

The biggest advantage to this financing strategy for a Baltimore County home purchase is to lock in a mortgage interest rate on a majority of the home purchase for much lower than current rates.

Things to be aware of with assumable mortgage loans

Not all mortgage loans give the option of a new homeowner assuming the loan. The current mortgage holder for the property will need to be contacted to see if this is an option. If the lender allows the option for assuming the loan the new potential homeowner will have to go through all of the same qualifying processes as with any loan for the lender to ensure they are able to take over payments.

Is an assumable loan really worth the chance at a lower mortgage interest rate?

The answer to this question is it depends on the specific loan terms for the property in question. In some cases, the terms may be ideal and you may have the extra amount of money to put down as a down payment. In some cases, it might make sense to take out a second loan to cover this extra cost. The best way to figure out if an assumable mortgage is truly a better scenario than taking out a brand new one is to talk over all the details with a financial advisor.

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