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Understanding Take Over Mortgage
By: Jenny Lane
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.
Assume A 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.
How To Take Over a Mortgage
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.
Advantages
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.
About the Author:
Jenny Lane is a banking specialist who writes on related financing and banking
industry topics. Find out more about the latest in banking industry at http://bankingtrends.com
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