Could Assumable Loans be Your Golden Opportunity to Get a Low Interest Rate?

Many potential homebuyers are searching for creative financing options that offer stability and affordability. One intriguing option that has been gaining attention is the assumable loan, which promises the possibility of taking on a low interest rate from an existing mortgage. This concept sounds very enticing, especially when interest rates are climbing. But what exactly does it entail, and is it the right choice for you?

An assumable loan allows a new buyer to take over the existing mortgage balance, along with its terms and conditions, from the current homeowner. It’s akin to subleasing a rental property, but in this case, you’re subleasing a mortgage. Understanding the nuances of assumable loans can be critical in making an informed decision about whether this path aligns with your financial goals and circumstances.

Let’s dive deeper into what an assumable loan is, the types of loans that can be assumed, and the pros and cons associated with them.

What is an Assumable Loan?

First, let’s define what an assumable loan is. Essentially, it’s a mortgage arrangement where the outstanding balance and terms of a mortgage are transferred from the current borrower to a new buyer. Think of it like a sublease for a mortgage. The new buyer takes over the loan, including its interest rate and repayment schedule, from the original borrower.

Types of Assumable Loans

There are a few different types of loans that can be assumable:

  1. VA Loans: These are loans backed by the Department of Veterans Affairs.
  2. USDA Loans: Loans from the United States Department of Agriculture, though less common.
  3. FHA Loans: These are loans insured by the Federal Housing Administration.

It’s important to note that conventional loans cannot be assumed.

The Pros of Assumable Loans

  1. Lower Interest Rates: The most attractive feature of assumable loans is the possibility of securing a lower interest rate than what’s currently available in the market. You qualify for the loan at the existing interest rate, not the current higher rates.
  2. Lower Upfront Costs: In some cases, the upfront costs may be lower because you’re taking over an existing loan rather than initiating a new one.
  3. Marketing Advantage: For sellers, advertising an assumable loan with a low interest rate can make their property more appealing to buyers.
  4. Home Equity Considerations: If the seller’s home equity is low, it could result in lower upfront costs for the buyer.

The Cons of Assumable Loans

  1. Covering the Loan Gap: One significant hurdle is that you must cover the difference between the sale price of the home and the outstanding loan balance. For example, if a home is selling for $500,000 and the loan balance is $300,000, you need to come up with $200,000 either from savings or through a secondary loan.
  2. Secondary Loans: Obtaining a secondary loan to cover the gap can be challenging. These loans often have variable interest rates, which may not make financial sense for everyone.
  3. Lender Choice: When assuming a loan, you must work with the existing loan servicer, not your preferred lender. This can complicate matters, especially if the current servicer is not prioritizing your transaction.
  4. Lengthy Process: The assumption process can take a long time. While it’s typically expected to take 60 to 90 days, it can extend to six months or more due to the low priority placed on such transactions by loan servicers. This delay can be a major inconvenience, particularly when you factor in holding costs during this period.
  5. Closing on Replacement Property: If you’re selling your home through an assumable mortgage, you can’t close on your next property until the assumption process is complete. This can complicate timing and logistics, especially if you’re on a tight schedule.


While assumable loans can offer a rare opportunity to secure a lower interest rate, they are not without their challenges. It’s essential to weigh the pros and cons carefully and consider whether this option aligns with your financial situation and timeline. For some, it could be the perfect solution to lock in an interest rate that may not be available again. For others, the complexities and potential delays might make it a less viable option.

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