Ready to buy a new-to-you home, but feeling trapped in your current one?
It costs more to finance a home purchase now than it did not that long ago, so you could be wanting to buy but feel stuck because today's rising loan rates can't compare with the super-low rate you're enjoying on your present mortgage.
Get your grandparents on the line and let them tell you about assumable mortgages. Finding one with a low rate, and assuming it, could be the answer, although the difference may not be great enough — yet? — to bring assumptions out of obscurity.
An assumable mortgage, if approved by a lender, lets a buyer buy out a seller's equity and assume the interest rate, repayment schedule, principal balance and other terms of a seller’s mortgage.
Conventional mortgages generally aren't assumable, but government-backed loans are — as in those insured by the Federal Housing Administration, Department of Veterans Affairs and U.S. Department of Agriculture.
"The last time we saw a significant number of assumptions was in the late 1970s and early 1980s, when interest rates were at the highest levels in the past 50 years," said David Chapman, chairman of the Oklahoma Real Estate Commission.
The point of assumption is to take over a loan at its original interest rate to avoid a new loan with a higher rate. The spread between the two was great a couple of generations ago.
"As an example, rates in 1965 were less than 6% and by 1980 the average mortgage rate was almost 15%," said Chapman, an investor, real estate broker, developer, and finance professor at the University of Central Oklahoma.
An assumable mortgage "makes the property much more valuable," he said. "Properties at that time without an assumable loan availability were actually worth less because they cost the buyer more."
Assumable loans aren't quite in the news again, but they have gotten a little renewed attention with recent rate hikes. Real estate agents are meeting with old-timers to learn, or relearn, about them, and to go over documents that have gone unused for years.
How do you find out if a home you want to buy has an assumable mortgage? How do you, as a seller, let would-be buyers know you have one? It's easy enough.
"If you're a seller, mention it. If buying a home, ask if it's assumable," investor and mortgage blogger Colin Robertson wrote in a recent post.
The post title tells the tale: "Assumable Mortgages: A Little Known Tool You Can Use Now That Interest Rates Have Surged Higher." It's been that long since assumable mortgages were part of the daily mortgage mix, because rates were so low for so long,
"The assumable mortgage hasn’t been on anyone’s radar over the past couple decades because mortgage rates kept creeping lower and lower," Robertson wrote. "But now that they’re surging higher and higher, you’ll likely hear more about them.
"Just know the many pitfalls and drawbacks involved."
Note: The sudden jump in rates has paused in the face of inflation and the increasingly possibility of recession, according to Freddie Mac.
Read the full article on The Oklahoman.
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