When a home is sold, the seller may be able to transfer the mortgage to the new buyer. This is called Mortgage Assumption because the buyer takes over, or assumes, the mortgage. This is a great selling feature if the seller's existing interest rate is below the current market rate. An Assumable mortgage requires the lender's approval. When you assume a mortgage you inherit both its interest rate and monthly payment schedule. An Assumable Mortgage can mean big savings if the interest rate on the existing mortgage is lower than the current rate on new loans - the lender, though, can change the loan's terms. Assumable mortgages aren't a free ride: you still need to qualify for the loan and you have to pay closing fees, including the costs of the appraisal and title insurance.

In an assumable mortgage, the lender will also hold the seller liable for the loan. For example, if you default and the lender forecloses, but the property sells for less than the balance remaining on the loan, the bank may sue the seller for the difference. For example, if the seller only has an assumable mortgage amount of $100,000 but is selling the home for $150,000, the buyer will have to come up with the additional $50,000. In other words, the buyer can only assume $100,000 dollars worth of the cost of the house, meaning the rest of the cost of the house may have to be borrowed at the higher current interest rate. And although the mortgage is assumed from the seller, the lender can change the terms of the loan for the buyer depending on several factors including the buyer's credit risk and current market conditions. One unique risk for this type of mortgage can exist for the seller of the home.

An assumable mortgage can hold the seller liable for the loan itself even after the assumption takes place. As such, if the buyer were to default on the loan, this could leave the seller responsible for whatever the lender is unable to recover. To avoid this risk, sellers can release their liability in writing at the time of the assumption.