By Andrew Augustyniak | People’s Mortgage
Assuming a Mortgage Loan
With interest rates continuing to rise, homebuyers are looking for ways to make their purchase more affordable. In past ‘Lending Tips,’ we have discussed the merits of the rate buydowns and this month we are going to discuss loan assumptions.
To begin, a loan assumption is where the new buyer takes over the current mortgage on the property they are purchasing. This includes the interest rate that the current mortgage has. As with any mortgage scenario, there are some important things to know about assuming the current mortgage which is outlined below:
- FHA and VA mortgages are assumable. Fixed-rate conventional mortgages are not.
- The new homebuyer does not need to be a veteran to qualify.
- The homebuyer is responsible for bringing in enough funds to cover the difference between the sales price and the current principal balance on the mortgage.
- The homebuyer must be occupying the property as a primary residence.
- The buyer must meet the required qualifying standards for the loan type of the mortgage they are assuming.
- The transaction is handled by the servicer of the current mortgage and typically charges a fee.
Adjustable Rates Mortgages
A fixed-rate mortgage has been the norm as long as I have been in the mortgage industry. As interest rates continue to rise, borrowers are asking for more options to structure their financing. Adjustable-Rate Mortgages or ARMS are not new but are back in vogue.
What is an Adjustable-Rate Mortgage (ARM)? An ARM has an introductory interest rate that lasts a set period of time and adjusts every six months to a year thereafter for the remaining loan term. The amount the rate will adjust is based on current market rates (typically determined by LIBOR or SOFR). After the set time period your interest rate will change and so will your monthly payment. There are pros and cons to this mortgage structure, which are outlined below:
- Your introductory interest rate is typically much lower than the fixed rate options.
- The monthly payment during the introductory period can be substantially lower than the reduced interest rate.
- A more affordable payment can enable you to purchase at a higher price point while waiting to refinance into a lower fixed rate.
- The interest rate eventually adjusts based on market conditions.
- If the interest rate increases, your payment will increase as well.
- You are required to qualify based on the maximum interest rate the ARM can adjust to.
|For additional information or any questions, always feel free to contact me directly!
|ANDREW AUGUSTYNIAK Branch Manager/Loan Officer
Call or Text: 480.735.4095
3303 S Lindsay Rd, Bldg. 2, Suite 104, Gilbert, AZ 85297
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|LO Licensing: AZ LO-0921752 CA-DBO911628 OR WA-MLO-911628 NMLS-911628 Company Licensing: Peoples Mortgage Company, A DBA of Moria Development, Inc. AZ BK-0904164 California – FLL603L266 / RMLA4130661, Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act: www.peoplesmortgage.com/privacy-policy OR-ML-5111 WA-CL-6274 NMLS-6274