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    The Difference Between Assumable And Non-Assumable Mortgages

    An assumable mortgage is a loan that allows the buyer to take over the sellers mortgage when purchasing his property. The lender is required to approve. Since the buyer is taking over the mortgage - or 'assuming' responsibility for it - it is called an 'assumption'. The buyer takes on all the obligations of this debt just as though the loan had been made to him in the first place. He will pay all the payments at the same time and rate that the seller did, so long as the lender does not make any changes in the contract, which he is legally entitled to do.

    The buyer can benefit from this assumption when the interest rates of the mortgage are lower than the present day interest rates. It also saves the buyer the cost of settlement on a new mortgage. Two other elements need to be taken into consideration before rushing out to find an assumption. The balance of the loan and the period of time remaining on it. Any savings will be reduced if the buyer has to get another, 2nd mortgage at a higher rate to supplement the first one. But not all is in the buyer's favor. He must qualify for the loan to start with and he is also responsible for payment of closing fees, including the cost of the appraisal and title insurance.

    The acceleration clause is often part of the mortgage agreement. This allows the lender to demand all money due on a loan, but only under certain conditions. This is usually when the buyer assumes the mortgage. More rarely the acceleration clause is used if a property owner defaults on his payments or breaks other terms of the contract.

    Those buyers who have cash on hand to pay the difference between the sale price and the balance of the original loan are the ones most likely to benefit from an assumable mortgage. But by law, the buyer is not the only one who must benefit from an assumption. The seller must benefit too, and the way this comes about is in a higher selling price. The one who misses out in any benefit is the lender, whose interest rate on his investment must remain the same.

    Non-assumable mortgages.

    There are several different types of non-assumable mortgages. The main difference in them to the assumable mortgage is that they cannot be passed over to a new buyer. So a homeowner with a non-assumable mortgage may be forced to stay put since if he moves he would need to take on a new mortgage at a much higher interest rate as well as still pay off the old one. A regular fixed rate mortgage usually has good rates and 95% financing, but is non-assumable.

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