Most people think their only options are refinancing or staying put. But there’s a third choice that almost nobody considers: assuming the seller’s existing mortgage.
It sounds obscure, maybe even impossible. But in a high-rate environment, it can save you tens of thousands of dollars—if you know when it actually works and when it’s just a distraction.
Why This Even Exists
Mortgage assumption isn’t new. It’s a legal mechanism that lets a buyer take over the seller’s existing loan, keeping the original rate, remaining balance, and term. The lender evaluates the buyer’s creditworthiness, and if approved, the loan transfers.
It was common in the 1980s when rates spiked. Then rates fell for decades, and nobody cared. Why assume a 6% mortgage when you could get 3%? The feature became vestigial—technically available on FHA, VA, and some USDA loans, but rarely used.
Now rates are elevated again, and suddenly that 2.75% mortgage from 2021 is worth something. If you’re buying a house and the seller has an assumable loan at a rate far below today’s market, you might be able to skip refinancing entirely and just step into their deal.
The Immediate Appeal
The math is compelling. Say you’re looking at a $400,000 purchase. The seller has an FHA loan from 2021 at 2.75%, with $300,000 remaining. Current market rates as of early 2026 vary by lender and borrower profile, but are generally elevated compared to 2020-2021 era rates—check current published rates from Freddie Mac or Bankrate before making assumptions.
If you assume that loan and finance the remaining $100,000 separately, your blended rate could be far lower than a straight conventional loan at today’s rates. Over 30 years, that difference could mean $100,000+ in interest savings.
And you avoid refinancing costs entirely. No appraisal, no rate lock, no origination fee—just an assumption fee (typically $500-$1,000) and the lender’s approval process.
It sounds like a cheat code.
The Catch: The Down Payment
Here’s where most assumptions fall apart. If the seller’s loan balance is $300,000 and the sale price is $400,000, you need $100,000 in cash to bridge the gap.
Most buyers don’t have that. They were planning on putting down 10-20%, not 25% or more. And if you don’t have the cash, you need a second loan to cover the difference—often at a higher rate, because it’s a junior lien.
So instead of one clean loan, you now have:
- $300,000 at 2.75% (the assumed loan)
- $100,000 at a higher rate (a second mortgage or home equity loan—rates vary significantly by lender, credit profile, and loan-to-value ratio; expect to shop multiple lenders and verify current rates for your specific situation)
The blended rate might still beat today’s conventional rates, but the complexity increases. You’re managing two payments, two servicers, and the second loan might have a balloon payment or shorter term. For some buyers, that’s fine. For others, it’s a nightmare.
When It Actually Makes Sense
Assumption works best in specific scenarios:
You have significant cash reserves. If you can cover the gap without a second loan, the savings are real and immediate. This is ideal for buyers who sold a previous home, inherited money, or have been saving aggressively.
The seller’s loan balance is high relative to the sale price. If the remaining balance is 80%+ of the purchase price, the down payment is manageable and the second loan (if needed) is small.
You plan to stay long-term. The benefit compounds over years. If you’re planning to move in 3-5 years, the hassle might not be worth it, especially if you factor in the cost of a second loan. For a longer hold, though, the math shifts heavily in your favor.
Rates stay elevated. If rates drop significantly in the next few years, you could have just refinanced normally and avoided the complexity. But if rates remain elevated or climb, locking in a low rate now becomes increasingly valuable.
The Process Is Not Like Refinancing
Assumption isn’t a refinance. It’s a transfer of liability. The lender treats you like a new borrower: full credit check, income verification, debt-to-income analysis. You have to qualify just like you would for a new loan.
The difference is that the rate and terms are already set. You’re not negotiating. You’re just proving you can handle the obligation.
This takes time—often 60-90 days, sometimes longer. Sellers aren’t always willing to wait, especially in a competitive market. And if the lender drags its feet or denies the assumption, the deal can collapse.
You also need the seller to cooperate. Some sellers don’t even know their loan is assumable. Others are hesitant because if the lender denies the assumption, they might still be on the hook until the loan is fully transferred. That creates risk for them, and they may prefer a clean sale with a conventional buyer.
The Hidden Costs Nobody Mentions
Assumption isn’t free. You’ll pay:
- An assumption fee (usually $500-$1,000)
- Title and escrow fees (same as any purchase)
- A second loan origination fee, if applicable
- Potentially higher homeowners insurance, since FHA and VA loans have specific requirements
And if you’re taking out a second mortgage to cover the gap, that loan might come with points, closing costs, and a higher rate. Suddenly the “free” assumption has $5,000-$10,000 in upfront costs.
You also lose some flexibility. With a conventional loan, you can shop lenders and negotiate. With an assumption, you’re locked into the existing lender’s servicing, which might be slow, unresponsive, or difficult to work with.
When It’s Actually a Waste of Time
If the seller’s rate is only slightly below market—say, a percentage point or less difference—the savings might not justify the complexity. You’re better off just getting a conventional loan and moving on.
If the loan balance is low relative to the sale price, the down payment becomes prohibitive. A $500,000 house with a $150,000 assumable loan means you need $350,000 in cash or a massive second loan. At that point, you’re not really “assuming” much.
And if you’re planning to refinance in a year or two anyway (betting on rate drops), assumption might lock you into a process that delays or complicates that plan. Some second loans have prepayment penalties or restrictions that make future refinancing harder.
The Comparison Nobody Makes
The real question isn’t “Should I assume?” It’s “What’s the alternative?”
If the alternative is a conventional loan at current market rates, assumption might save you $50,000+ over the life of the loan. But if the alternative is waiting for rates to drop and refinancing later, the calculus changes. You’re betting that rates stay high long enough for the assumption to pay off.
And if the alternative is buying with an ARM and refinancing in 5-7 years, you might get similar savings with more flexibility.
The point is: assumption is a tool, not a strategy. It works in narrow circumstances, and only when you’ve done the math against every other option.
The Real Risk Is Complexity
The biggest cost of assumption isn’t money—it’s friction. Two loans, two servicers, longer closing times, seller hesitation, lender delays. All of that adds stress to an already stressful process.
Some buyers can handle it. They’re organized, patient, and financially sophisticated. Others will find it overwhelming, especially if they’re first-time buyers or already stretched thin.
And if the assumption falls through halfway through the process, you’ve wasted weeks and possibly lost the house to another buyer.
The Rule of Thumb
If the seller’s rate is at least 2% below market, the loan balance is 70%+ of the sale price, and you have the cash or can get a reasonable second loan, assumption is worth exploring.
If any of those conditions fail, you’re probably better off with a conventional loan or an ARM.
And if the seller doesn’t even know their loan is assumable, you’re starting from scratch. You’ll need to educate them, convince them it’s worth the wait, and hope the lender cooperates.
That’s a lot of ifs.
What This Means for Refinancing
Here’s the irony: if you already own a home with a low-rate assumable loan, you have an asset most buyers don’t know exists. When you sell, that loan is a selling point. It could justify a higher sale price or help you close faster in a slow market.
But if you refinance, you lose it. Refinancing replaces your existing loan, and the new loan probably isn’t assumable (most conventional loans aren’t). So before you refinance to pull cash out or lower your payment, consider whether you’re giving up a feature that could be worth thousands when you sell.
The Question You Should Be Asking Next
If assumption makes sense in a high-rate environment, what happens if rates drop? Do you refinance out of the assumed loan, or stay put and keep the low rate?
That’s the next decision. And it’s one most people won’t face for a few years—but it’s worth thinking about now, before you commit to a structure that might limit your options later.