assumable Mortgage Basics – An Overview
Mortgages are generally taken for one time use and with that one time payment, interest is charged. A mortgage is a lien on real property for a specific period of time, called the “mortgage term”. There are different types of mortgages including fixed-rate, interest-only, and balloon-payment mortgages. The mortgage term is usually for a minimum of five years; however, it can be as long as twenty years. Mortgages are most often used by consumers when buying homes.
An assumable mortgage is a contract that allows the buyer to assume the liability of the seller, commonly referred to as borrowers’ mortgage. This contract relieves the buyer from the cost of closing costs. Generally, the assumable mortgage is the same as the seller’s first mortgage but the buyers is not released until the closing costs have been paid.
This type of mortgage is only designed for the benefit of the seller. The seller may choose to release the mortgage during the course of the sale. On the other hand, the seller must exercise all due diligence and select a buyer who will assume his mortgage after the closing. One advantage of this type of mortgage is that it relieves both the seller and the buyer of significant expense and hassles. Another advantage is that in the event of default, the seller does not lose his home.
Mortgages are considered unsecured loans because they do not require any collateral, such as the full faith and credit of the seller. In most states, mortgages are not considered mortgages but a loan. It is a loan secured by a borrower’s property. This means that if the loan goes into default, the property that secures the loan becomes possessed by the lender. This is referred to as “essentially giving the house to the buyer”.
Although a conventional second mortgage can give the buyer the right to collect on the debt by selling the house, it is usually not done because of significant expense. Usually, buyers purchase a second mortgage for one of two reasons: to buy a home with a low price and use that money to make an offer, or to purchase a home at a higher price without using the money in the first place. A conventional second mortgage is a loan that is subordinate to the first mortgage. This means that it is subordinate to the legal title, but it is not attached to it.
Assumable mortgages are different. These mortgages give the buyers a right to collect on the debt at any time without having to sell the home. It is similar to a conventional mortgage in that it is secured by the property and it is granted by the lender after the buyer secures the loan. However, the buyers are not required to purchase a home to take advantage of this option. Instead, the seller may choose to take out a second mortgage on his property. If he chooses to do this, the seller must provide a security to secure the loan.
What happens when the homebuyer secures the loan and sells the home after the specified period? Under most states, this is considered to be a transfer of title and thus allows the homebuyer the right to collect on the loan. As long as the mortgage company holds the original loan agreement, the homebuyer will have access to the funds in the event of his demise. However, if the contract was originally set up with a conventional mortgage company, then the home seller may only access the loan if he initiates a settlement of the note. The home seller may then sell the house and pocket the difference between the cash surrender value of the home and the outstanding balance on the loan.
Both types of loans have their own advantages and disadvantages. The specific needs of the borrower will determine which type of mortgage best meets his needs. In general, however, both loans are risky, since it entails borrowing money from a third party and there is an inherent risk that the loan won’t be repaid. It also puts the burden of debt onto the shoulders of another party. So borrowers need to carefully consider both the advantages and disadvantages of both the types of mortgages.