An assumed loan—even if the note's interest rate is more than current market rates—will save the buyer thousands in interest payments. Remember that the bulk of the interest charges on a mortgage loan is paid during the first years of the loan. Regardless of the interest rate on the loan promissory note, your actual interest rate will only be a fraction of that rate.
Another way to look at assumption loans is that, in a sense, the seller has paid discount points for the buyer, which lowers total interest charges.
For example, if a buyer assumes a 30-year loan after the seller has had it for ten years, the seller has already paid much of the interest. The buyer will therefore pay the low monthly payments of a 30-year loan, but with only twenty years of mostly principal payments remaining.
A more direct example of the savings assumptions offer is to compare an assumption of a $100,000 balance on a 30-year loan with only 20 years left and a $100,000 20-year fixed-rate loan. Let's assume that with both options, the interest rate is 10%.
Was this article helpful?
Tap into the secrets of the top investors… Discover The Untold Real Estate Investing Secrets Used By The World’s Top Millionaires To Generate Massive Amounts Of Passive Incomes To Feed Their Families For Decades! Finally You Can Fully Equip Yourself With These “Must Have” Investing Tools For Creating Financial Freedom And Living A Life Of Luxury!