Assumption Clause
You want to sell your house, which still has some payments left to go on the mortgage. You have found a buyer. The usual procedure is for the new buyer to get their own mortgage for the property, which provides the money to buy the house. You take that money to pay off your mortgage.
The key point to notice is that there are two mortgages involved in this process. The buyer got a mortgage and used that mortgage to pay off your mortgage.
If your mortgage has an assumption clause, it can simplify this process. The assumption clause allows you to pass the mortgage off to someone else. Basically, the buyer takes over your mortgage, rather than getting another mortgage.
Most mortgages don't have assumption clauses. They are nice for the person buying the house, because the buyer can then effectively choose between the old mortgage and the terms they can get from a lender now. So if the interest rate of the assumable mortgage is lower than the interest rate they could get today, the buyer might choose to assume the mortgage. However, if rates are lower now, they can scrap the old mortgage and just go the traditional route in getting a new one.
As you might guess, this fact has made assumption clauses unpopular with lenders, thus assuring that they have become a rare inclusion in mortgages today. However, a similar process does come up in mortgages backed by the government's Federal Housing Authority, which allows mortgage assumption under certain conditions.
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Finance allah shmoop shmoop What is a mortgage Well people
a mortgage is just dead it's alone but one with
special tax treatment For most people simply put Any interest
you pay on a mortgage to buy a home is
tax deductible Morty morton's inputs down a hundred thousand bucks
to buy a home that costs four hundred big ones
his mortgages three hundred grand at five percent interest per
year So that's fifteen thousand dollars a year he pays
to rent the money from the bank which he uses
to buy his dream home with the loop de loop
waterslide Morty earns one hundred grand a year and pays
tax on his last fifteen thousand of earnings soas faras
The irs is concerned since morty can deduct his fifteen
thousand dollars in interest against his earnings he does not
in fact earn taxable wages of one hundred grand annually
Instead he earns taxable wages of eighty five thousand dollars
a year Essentially with government is doing is sharing in
some of the cost of renting the money Taub i'm
ortiz home well why would the u s government be
so charitable Well because home ownership has been integral part
of the american dream since the u s of a
i po'ed in seventeen seventy six easy access to mortgages
and then home buying can be a hugely beneficial asset
In the vast majority of cases homes create family stability
a store of wealth and tax dollars for local schools
in the form of real estate taxes So don't feel
bad about splurging on that water slide there Morty Just 00:01:42.93 --> [endTime] remember you're doing it for the kids Hello
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