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In a housing market defined by rising interest rates, some sellers are offering a rare and enticing perk: their sub-4% mortgage. This trend hinges on assumable mortgages, which allow qualified buyers to take over the seller’s existing loan, inheriting its historically low-interest rate. 

What is an Assumable Mortgage? 

An assumable mortgage is a type of financing arrangement in which an outstanding mortgage and its terms can be transferred from the current owner to a buyer. This means that the buyer can take over the seller’s loan at the existing interest rate, remaining balance, and repayment period, subject to lender approval. Assumable mortgages can be particularly advantageous in a market where interest rates are higher than the rate on the existing mortgage, offering potential savings on interest costs and sometimes even a quicker and simpler loan process. 

Why Now? 

The motivation is clear. With current mortgage rates hovering around 7% according to Freddie Mac (1), a sub-4% rate is a golden ticket. For example, assuming a 30-year fixed-rate mortgage at 3.5% instead of a new loan at 7% on a $300,000 home could save a buyer hundreds of dollars each month. 

A Niche Market 

While attractive, assumable mortgages are uncommon. According to data from Intercontinental Exchange (ICE), only about 23% of the 12.2 million active mortgages are assumable, and of those, only an estimated two-thirds (around 16%) boast rates below 4% (2). This means a very specific subset of homes qualifies for this strategy. Additionally, many of these mortgages were secured within the last few years, meaning the homeowners may not be looking to sell yet (2). 

Finding the Diamond in the Rough 

Despite the limitations, demand for assumable mortgages is rising. New startups like Roam, AssumeList, and Assumable.io are catering to this demand by creating platforms specifically for assumable listings. Even traditional real estate listings are increasingly highlighting sub-4% mortgages as a selling point. 

Challenges Remain 

Even if you find a home with an assumable mortgage, there are hurdles to clear. Qualifying for the loan transfer can be complex, and sizable down payments are often required to bridge the gap between the purchase price and the remaining loan balance (3). 

A Sign of the Times? 

The rise of assumable mortgages reflects the challenges of a high-rate environment. While they are unlikely to become mainstream, they offer a potential lifeline for some buyers and a unique selling proposition for sellers with low existing rates. 

Sources: 

  • “Mortgage Rates.” Freddie Mac, www.freddiemac.com/pmms. Accessed 28 May 2024. 

  • (2) Assumable Mortgages: Latest Attempt to Thaw Housing Market, www.axios.com/2024/05/21/assumable-mortgages-housing-market-how.  

  • (“Assumable Mortgage: What It Is and How It Works.” What Is An Assumable Mortgage? | Rocket Mortgage, www.rocketmortgage.com/learn/what-is-an-assumable-mortgage.  

Pinnacle Financial

The Pinnacle team’s primary objective is to provide holistic financial strategies. Our ultimate vision is to educate clients about their own personal financial challenges and potential solutions regarding complex financial issues.

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