Short Term Strategies

In some situations, you might gain by assuming a mortgage that carries a higher-than-market interest rate. Say, current rates hover around 6.5 percent and you're negotiating with a seller whose assumable mortgage shows a rate of 7.5 percent. Not worth assuming? Don't jump to that conclusion. Assumptions usually cost less in terms of time, effort, and cash-to-close than new mortgage originations; therefore, this higher rate, 7.5 percent assumption could prove profitable under short-term strategies such as the following:

  • You plan to own the property for only a year or two.
  • Inflation has dropped and interest rates seem sure to fall further. You want to time your new mortgage to coincide with the market bottom that you foresee.
  • You plan to improve the property to increase its value. Then, you'd like to get a new loan based on this higher improved value.
  • Your borrower profile displays some warts. New financing at the lowest rates available could prove iffy. To qualify for the assumption probably won't require the same exacting standards. One or two years of perfect payments could set you up to then qualify for a refinance as an "A" borrower.
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