Take Over Mortgage
A take over mortgage is a loan where the terms and conditions of the loan can be transferred from one borrower to a new borrower. The term take over mortgage is also used to refer to assumable loan.
Home buyers can assume a seller’s mortgage when purchasing a home with a take over mortgage payment. The approval of the lender is usually required before you can have a take over mortgage. With take over mortgages, the interest rate and the monthly payment schedule is assumed by you. This means you can save a lot with take over mortgages, especially if the interest rate on the existing loan is lower than the current rate on new loans. However, lenders can change the loan terms of take over mortgages so you must be prepared for that.
Along with the interest rate and the monthly payments, you also inherit the liability of the take over mortgage. If for instance, you cannot make the payments for the take over mortgage, the lender will foreclose. And if the property sells for less that the balance of the take over mortgage, the lender reserves the right to sue you for the difference.
A take over mortgage is not a free ride either. In order to get a take over mortgage, you still need to undergo a pre-qualifying process. Closing fees will still need to be paid before you can get a take over mortgage. Also, a take over mortgage requires payment for appraisal costs and title insurance.
For example, a friend of yours wants to sell his home to you for $95,000 and has a take over mortgage of $90,000 with 7% interest. With a take over mortgage, you only need to put down $5,000 to assume your friend’s home and mortgage. Along with the $5,000 take over mortgage down payment, closing fees are applicable.
Another example is when one of your friends got a take over mortgage for $80,000 with 6.5% fifteen years ago. The take over mortgage loan balance left is $70,000. This means that the property is now worth $160,000. For a take over mortgage, you only need to come up with $90,000 plus money for closing costs.
Take over mortgages have been around the market for years. Because take over mortgages allows the consumer a chance to assume a loan with lower interest rates, take over mortgages became popular.
Take over mortgages experienced an all time high in the 1970s and 1980s when interest rates soared. Existing mortgages had interest rates at 5 percent to 7 percent but when the rates rose, the original percentage rose also, forcing a pay out of 10 percent to 15 percent in interest on deposits. These forced buyers to use take over mortgages so they could assume loans with lower rates.
If you want a take over mortgage, remember that if a deal sounds too good to be true, it probably is. Sellers offering cheap take over mortgages are also offering something of significant value. With take over mortgages, sellers are likely to charge more for their houses. This could mean that you would have to come up with more funds to cover the difference between the asking price and the take over mortgage loan balance.
However, the assumability feature of take over mortgages can also give you a chance to cash out later, especially since the property you are assuming could increase in value with the growing rates over time.