Interest rates are somewhat high today.
I was lucky and locked in a low interest rate loan on my place a few years ago.
Is there a way to transfer the mortgage and keep that low interest rate to a new buyer?
At one time there were such mortgages. Like when I was a kid.
The term of art is “assumable”. Poke around in the detailed language of your mortgage and you’ll either find something saying it’s assumable, or that it’s not assumable, or no mention of assumability. In the latter case, 99% odds it’s not assumable.
IIRC from the mortgages my late wife’s bank customers did, assumability sorta disappeared from standard practice back around WAG 1995. So IMO it’s not strictly impossible that you have an assumable one, but it’s very very unlikely.
Unless your mortgage was issued as a non-conforming loan, and not sold off into the secondary market, it will have a “due on sale” clause and not be assumable.
Even if it is nonconforming it very likely has a due on sale clause.
This is the first time in 40 years that the differential between current mortgage rates and the rates only a few years ago is wide enough that it represents the difference between affordability and unaffordable for many buyers. So people are trying to figure out ways around the due on sale clause. Any method is going to either questionably legal or very risky for the seller of both. You want to effectively sell the house without legally selling the house. But that leaves you on the hook if the “buyer” defaults.
My parents bought a home in 1980s with an assumable mortgage that was 500 basis points lower than the current rate (8.xx% vs 13.xx%). The loan was for 60% of the selling price, and my parents were able to come up with the 40% down payment. Even so, the buyer got a premium of probably 5-10% on the sale price because of the “low” rate mortgage. I put low in quotes because it was still higher than the “high” rates today. The sellers had to battle their lender to preserve the assumability. Naturally the bank wanted to declare any buyer to be not qualified to assume the loan. Because any premium the buyer was realizing because of the favorable interest rate was coming out of the bank’s hide. And indeed the bank did go under a few years later.
I’m surprised that they were ever assumable. The interest rate is partially based on the creditworthiness (i.e., ability to make mortgage payments for many years) of the borrower. If you can simply sign over the mortgage to anyone you want, that signicantly changes the risk parameters from the perspective of the lender.
Maybe historically banks believed that home values always go up, so they’d be “in the money” regardless.
As I remember it the assumer of the mortgage must meet the same creditworthiness requirements as the original borrower, adjusted for the change in the equity. The reason this was popular during certain periods was that interest rates had risen and so had home prices (like they are now). It helped to unfreeze the market. Right now people are loath to sell because the replacement house of the same price would have a mortgage payment double the current one.
Mr Jones in Stamford has a new job in Garden City. The commute is two hours. Ms. Smith in Melville has a new job in Rye, and his commute is two hours. The Joneses would like to move to Melville and the Smiths would like to move to Stamford.
But if they sell and buy each other’s houses, they’d each end up with a mortgage that is at 6.75% instead of 3.5%. Do they stay where they are and commute two hours each way. Or don’t take the new jobs.
Or the Alvarez family stays in a 2BR condo with three kids, while the empty nester Steinbergs remain in their 4 BR single family home because they’d pay more per month for the condo.
I think that some VA mortgages are assumable (the new borrower must meet creditworthiness requirements) but most standard bank mortgages are not.
I wouldn’t hurt to ask though.
Various state varieties of the so-called “homestead exemption” associated with property taxes can have the same effect. If you live in the same house with an attached homestead exemption for 20 years, then swapping houses with your neighbor who’d moved in at the same time you did might double or triple both of your property taxes.
I recently sold a house that had a 2.2% mortgage interest rate. The buyer was getting quoted at 6.9%, so I ended up seller financing at 6.5% and have a lien on the house I used to own. The loan was not assumable, which I think is the case for 99.9+% of loans today.
Thanks. Good info
All of that connects to an aphorism I came up with. (Not to say somebody smarter and/or more famous hasn’t also done so.) Namely:
Homeowners buy a monthly payment, but sell an all-up cash price.
Which leads to all sorts of interesting effects because the relationship between monthly payments and cash prices have the additional factors of interest rates, mortgage durations, and years or decades of time passage.
Back in the day, 10 or 15 year mortgages were common. The now-standard 30 year mortgage was entirely an effort by the banks back in the 1970s to solve the monthly payment vs cash price problem in the face of high inflation and high real interest rates at the same time.