Takeover Mortgage

A takeover mortgage is a loan where the terms and conditions of the loan can be transferred from one borrower to a new borrower. The term takeover mortgage is also used to refer to assumable loan.

Home buyers can assume a seller’s mortgage when purchasing a home with a takeover mortgage payment. The approval of the lender is usually required before you can have a takeover mortgage. With takeover mortgages, the interest rate and the monthly payment schedule is assumed by you. This means you can save a lot with takeover 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 takeover mortgages so you must be prepared for that.

Along with the interest rate and the monthly payments, you also inherit the liability of the takeover mortgage. If for instance, you cannot make the payments for the takeover mortgage, the lender will foreclose. And if the property sells for less that the balance of the takeover mortgage, the lender reserves the right to sue you for the difference.

A takeover mortgage is not a free ride either. In order to get a takeover mortgage, you still need to undergo a pre-qualifying process. Closing fees will still need to be paid before you can get a takeover mortgage. Also, a takeover 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 takeover mortgage of $90,000 with 7% interest. With a takeover mortgage, you only need to put down $5,000 to assume your friend’s home and mortgage. Along with the $5,000 takeover mortgage down payment, closing fees are applicable.

Another example is when one of your friends got a takeover mortgage for $80,000 with 6.5% fifteen years ago. The takeover mortgage loan balance left is $70,000. This means that the property is now worth $160,000. For a takeover mortgage, you only need to come up with $90,000 plus money for closing costs.

Takeover mortgages have been around the market for years. Because takeover mortgages allow the consumer a chance to assume a loan with lower interest rates, takeover mortgages became popular.

Takeover 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 takeover mortgages so they could assume loans with lower rates.

If you want a takeover mortgage, remember that if a deal sounds too good to be true, it probably is. Sellers offering cheap takeover mortgages are also offering something of significant value. With takeover 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 takeover mortgage loan balance. However, the assumability feature of takeover 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.