Assumption of Mortgage
The process by which a buyer takes legal responsibility for the seller's existing mortgage debt, including all payment obligations and loan terms. This requires lender approval and the buyer must typically qualify based on income and creditworthiness.
Example
“The assumption of mortgage saved the buyers $5,000 in loan origination fees and gave them a lower interest rate.”
Memory Tip
It's like assuming responsibility - you ASSUME the mortgage responsibility from someone else.
Why It Matters
Mortgage assumption can provide significant interest rate savings and reduce closing costs, but the buyer becomes personally liable for the entire debt amount.
Common Misconception
Assuming a mortgage doesn't automatically release the original borrower from liability unless the lender agrees to a novation or release.
In Practice
A buyer assumes the seller's $200,000 VA loan at 3.2% interest, pays the seller $50,000 for their equity, and takes over the monthly payments rather than getting a new loan at current rates.
Etymology
Combines 'assumption' from Latin 'assumere' (to take upon oneself) with 'mortgage' from Old French meaning 'dead pledge'.
Common Misspellings
Compare the best financial products for you
More in financing
Other financing terms you should know
Need financial definitions?
Clear definitions for 2,500+ finance, insurance, and investing terms.