Free Article tip for loans

The value of an assumable loan comes from two sources. It is often easier for the buyer to qualify when assuming a loan and the payments may be lower than for new financing. However
its value may be limited by two important factors. If the balance of the loan is much below the asking price
the loan may not be worth much. For the buyer to assume
either a large cash down payment is requited or additional financing will be needed. This extra financing may be a loan provided by the seller. Second
if the rate on the existing loan is close to or above the going rate
there is little advantage to assuming it.

How do you know if your loan is assumable? An FHA or VA loan is likely to be assumable. A conventional loan is not likely to be assumable. Look in your loan contract for a “due on sale” clause. If it is there
the lender has the right to call in the loan when you sell the home. There are assumable conventional loans that require a slightly higher interest rate.
If you have an assumable loan at an interest rate below the market
you should get a higher price at the sale. Remember that when you repurchase
you will have to pay more for financing. A higher resale price compensates you for giving up favorable financing.

How much is the loan worth? Consider that
since the loan payments are lower
the buyer could pay a higher price and still make the same payments. Say you have a home that is worth $100
0
You have an assumable loan for $70
0
at 8% interest. There are 25 years left in the teim. A new loan for $70
0
at the prevailing rate of 10% and 30 years requires a monthly payment of $614.30. Your loan’s payments are $540.27. The monthly savings of $74.03 would service a loan at the market rate over 25 years for $8147. Therefore
a buyer who assumes the loan could borrow an additional $8000 and still enjoy lower payments than by using totally new financing. Whether you could extract this amount in the sales price depends on market conditions. However
the assumable loan provides an important sales tool in any market.

If you think you may sell your home in the near future
you may want to refinance with a new assumable loan at a relatively high loan-to-value ratio. This will provide a form of insurance in case interest rates rise or mortgages become hard to get when you do sell.


This article may be published freely as long as you keep the below credits:
Article by (Tommy Lee). For more info on Finance and Refinancing Mortgage loans
visit http://www.smartrefinance.net