Why To Refinance Now To An Assumable Mortgage
Refinancing to a FHA assumable mortgage loan may be the smartest financial move you have ever done. There are several factors which makes refinancing to FHA assumable mortgages more lucrative than ever. The main benefit to refinance now at 2015 to a FHA mortgage loan is because the rates are low and are expected to increase in the coming years. So now is the last chance to get an assumable mortgage at it’s highest value.
What Is An Assumable Mortgage Loan
An assumable mortgage is a regular mortgage which can be transferred from the seller to the buyer. The buyer buys the house and accepts the terms and rates of the current mortgage, and assumes all the liability from the seller. The buyer does not need to shop for a new mortgage, the buyer gets the mortgage as-is with the same rates as the seller have locked a few years back. If you are the seller it is important that you get a letter from the lender which releases you from all liability to the mortgage from the closing point/transferring moment.
1. Assumable Mortgage Loan Example:
Smith has a home for sale at the price of $150,000 and has an assumable mortgage loan of $130,000 with 5% interest. Jack wants to buy Smith’s home. With an assumable mortgage, Jack only needs to add $20,000 (plus closing fees) to own Smith’s home and mortgage.
2. Another Assumable Mortgage Example:
Robert bought a home with an assumable mortgage loan of $150,000 with 5.5% interest rate. Three years from now, the mortgage balance is $120,000 and Robert wants to sell his home. Sally is looking to buy a home, she does her financial homework and finds that the current mortgage rates are for 7.5%. Robert offers his home to Sally at $170,000 with an assumable mortgage. Sally can buy the home assuming the mortgage and enjoy $120,000 of mortgage with 5.5%. She will need a $34,000 as down-payment (20% from $170K) and a small $16,000 second mortgage at the current rates (7.5%) to pay Robert for the house.
The assumable mortgage made Robert home stand out significantly compared to other homes for sale at that time, because it was offered with an assumable mortgage loan locking a lower rate for future buyers. This value can be worth up to $20,000 or more, and is usually divided between the seller and the buyer. If the seller takes all the value, his home becomes comparable, if the buyer gets all the value, then the seller is selling cheap and losing money.
When To Leverage an Assumable Mortgage
When assumable mortgages are worth your notice? Now at 2015 when future rates are expected to be higher than current rates, there is a real incentive and value for such mortgages.
The sub-prime crisis has caused the national mortgage interest rates to fall to their lowest rates ever. But that will not be the situation forever, the mortgage interest rates will rise, and will reach their former rate of 7% or even more within a few years. So obtaining an assumable mortgage and locking a low 5% rate now may be worth thousands of dollars somewhere in the future, when you may want to sell your home!
Lenders Dislike Assumable Mortgage Loans
First of all, regular lenders and banks do not like the assumable mortgages, for them it is a ‘lose’ situation. The lender does not gain any thing from the fact that the new buyer gets the mortgage in the same low rates. They prefer to provide new home-buyers with a new mortgage with current (higher) rates.
So most lenders block this option from the borrowers and prohibiting assuming mortgages by adding a term to the contract that the when the property is sold the mortgage must be paid off in full. So the seller needs to pay off all the mortgage left on the house with the cash they get from the buyer, and the buyer will need a new mortgage to be able to pay the whole sum in one lump.
In case the lender allow assuming a loan they will charge a fee associated with an Assumable Mortgage to cover the documentation, and recording of the transfer. In some cases they will change the terms or even the rates and try and lock the current rates.
Why To Refinance 2015 – FHA Assumable Mortgages
Most regular mortgage lenders would not be too thrilled to allow you to transfer the mortgage somewhere in the future. VA (veterans affairs) loans can be assumed too, but you have to be a veteran to apply for those. But there is a loophole, FHA backed mortgages are still allow assuming them when the home is being sold.
The seller would need to be able to meet all the FHA mortgage requirements and FHA minimum credit score requirements and show the lenders they are qualified for a mortgage. But once the buyer has been approved the mortgage can be transferred and the buyer assumes the mortgage with all the liability at the closing.
If you have any other mortgage, with high interest rates, then refinancing may be the best thing to do. See these 5 reasons why refinancing may be a mistake. If non of the reasons apply to you, then refinancing may be a sensible option. Refinancing to FHA assumable mortgage, is actually the only option for an assumable mortgage.
Assumption Mortgages Refinanced Conclusion
Because the only option for mortgage interest rates now is to get higher… and the best way to save your option to sell your home and get a better price for it, is to sell it with an assumable mortgage with it. Now at 2015 when all the lenders block this option, you can get such mortgages by refinancing to FHA assumable mortgages.
You will be saving money by reducing your mortgage monthly payments or reducing the mortgage terms. You will be holding a ‘profitable share’ when interest rates will sky-rocket in few years. You could either raise your home price and still have a lucrative asset people would want to buy, or keep your home comparable and get a higher down-payment as part of the value the buyers enjoys.
In any case refinancing to a FHA assumable loan is worth the time and effort.