Rosalind Evans
As mortgage rates hover around 6%, homebuyers seek creative alternatives to reduce interest costs. One increasingly popular option is the assumable mortgage, a method that allows buyers to inherit an existing mortgage rate, which could be as low as 2% or 3%. This has prompted a resurgence of interest in a once-common practice, especially as recent years have seen a rise in mortgage assumption searches.
A Forgotten Path to Low-Interest Mortgages
The concept of mortgage assumptions, once a popular method in the 1970s and 1980s, has largely faded from public awareness. It allows homebuyers to take over an existing mortgage from a seller, locking in the original interest rate. For those able to find these rare opportunities, this can mean securing a mortgage at the much lower rates seen during 2020 and 2021. As a result, Google search queries for “assumable mortgage” saw a notable increase in 2022, continuing into 2023.
Why Mortgage Assumptions Declined
The decline in mortgage assumptions is primarily attributed to the Garn St.-Germain Act of 1982. This law permitted private lenders to enforce a due-on-sale clause, requiring the full repayment of the loan if the property changes hands. This effectively limited the use of assumable mortgages outside exceptional cases such as divorce or property inheritance.
Current Market Opportunities for Assumable Mortgages
Despite the challenges, a subset of mortgages remains assumable today, specifically those backed by the Veterans Affairs (VA), Federal Housing Administration (FHA), and the United States Department of Agriculture (USDA). According to Raunaq Singh, CEO of Roam, “Twenty percent to 25% of the homes on the market will be fully assumable at one time.” However, he notes that “the number of assumption transactions that are happening is far fewer than the number of mortgages which can be assumed.”
Assumptions Are Rising, But Still Rare
Though mortgage assumptions are still relatively rare, they are becoming more common. According to FHA data, there were 4,052 FHA-backed mortgage assumptions completed in 2023, marking a 59% increase from 2021. The VA has seen even more dramatic growth, with a 713% increase in assumptions during the same period. In 2024, both the FHA and VA have already surpassed 5,000 assumption transactions, signaling a potential shift in the market.
While assumable mortgages remain a rare opportunity in today’s housing market, they offer a powerful tool for homebuyers to secure historically low interest rates. The trend may grow as more buyers discover this option, relieving those facing high mortgage rates. For those lucky enough to find them, assumable mortgages could significantly affect their financial future.
