Assumable mortgages shine bright in residential market

A common complaint among house hunters is that they missed out on the low mortgage rates that became a feature of the market from 2020 to 2021. For some, however, it may not be too late to land their own low rate.

Assumable mortgages are becoming a significant selling point in the residential market, the New York Times reported. A good way to make high home prices more palatable, there are benefits for both buyers and sellers in transferring their low rates — if they can.

But  it’s not so simple for a number of reasons. First, the homeowners with interest rates below 3 percent are the ones who purchased their properties approximately 18 months or so ago. Unless they’re experiencing buyer’s remorse or a big life change, they probably aren’t interested in selling their home so soon.

Additionally, assumable mortgages aren’t common. The most typical type of directly assumable mortgage comes from government backing, like those insured by the Federal Housing Administration or the Department of Veterans Affairs. A quarter of outstanding loans come from these entities, according to the chief economist of the Mortgage Bankers Association, Michael Fratantoni.

Sellers of assumable mortgages run the risk of losing their ability to get another loan backed by the same insurer, though. If the seller paid down much of the mortgage, they’re also incentivized to try unloading their property for even more to recoup some of that lost equity.

Those who don’t have assumable mortgages could still try to move them in even riskier financial deals, such as “subject to” deals where buyers make a side deal to take over low-interest payments for those in debt. Buyers run the risk of having the loan called back, while sellers could have their credit scores destroyed upon any foreclosure.

The demand for assumable mortgages is growing to the extent that businesses are being formed around the concept. Colorado real estate agent Craig O’Boyle started Assumable Solutions as a consulting firm that helps agents deal with moving mortgages in exchange for an $1,100 processing fee.

Despite the logistic landmines, an assumable mortgage may be a good perk to offer a buyer if a seller is looking to move quickly, especially as home prices remain elevated. In January 2021, rates averaged a historical low of 2.65 percent — for the week ending June 2, the average rate on a 30-year fixed mortgage was 6.81 percent, according to the MBA.

— Holden Walter-Warner