Assumable Mortgage Calculator

A buyer offers $400,000 for a home whose seller owes $285,000 on an FHA loan at 3.25% with 26 years left and $125 a month of mortgage insurance. The buyer has $40,000 in cash. The equity gap is $115,000.00, so after the cash a 20-year second loan at 8.5% covers $75,000.00. The alternative is a 30-year loan of $360,000.00 at 6.25% with 3% closing costs and $150 a month of private mortgage insurance.

Assuming saves $236.43 a month and $73,584.87 of interest over ten years, and it costs $9,000.00 less to close, because the $1,800 fee is far smaller than a new loan's closing costs. The assumed loan also ends four years sooner. The 8.5% second loan pulls the blended rate up to 4.34%, which is still well under 6.25%.

The size of the gap decides most of the outcome. If the same seller owed only $200,000 with 20 years left, the second loan would grow to $160,000.00, the blended rate would rise to 5.58%, and the monthly payment would be $281.33 higher than the new loan's, because both loans pay off within 20 years instead of 30. Over ten years it would still save $38,419.58 of interest, and much more of each payment would go to principal.

• The rate gap is wide and the equity gap is small. A low-rate loan that covers most of the price is the best case. When the gap needs a large second loan at a high rate, compare the blended rate with today's rate before you decide.
• You can wait. Assumptions take longer than a new loan: VA gives servicers with automatic authority 45 days to decide on a complete application, and FHA assumptions are underwritten by hand.
• The shorter term fits your budget. A loan with 26 years left has a higher share of principal in each payment. That builds equity faster, but the payment can be higher than you'd expect from the rate.
• The mortgage insurance is known. FHA mortgage insurance continues on the assumed loan, so ask for the seller's statement. Compare it with the private mortgage insurance a new loan would need.

Sellers should ask for a release of liability so they aren't responsible if the buyer stops paying, which FHA does with form HUD-92210.1. A seller with a VA loan also keeps their entitlement tied to the loan unless an eligible veteran buyer substitutes their own. To see the full schedule of a loan you take over, run its balance, rate and remaining term through the mortgage amortization calculator; buying a two- to four-unit property with FHA financing instead? Check the rent with the FHA self-sufficiency test calculator.

An assumable mortgage can save hundreds of dollars a month and tens of thousands in interest when the seller's rate is low and the equity gap is manageable. In the example, assuming a 3.25% FHA loan saves $236.43 a month and $73,584.87 of interest over ten years compared with a new loan at 6.25%.

Ask the seller's servicer whether the loan is assumable, how long approval takes and what the fee is, then price the second loan and run your numbers through the assumable mortgage calculator above before you make an offer that depends on it.