Understanding Assumable Mortgages and This Calculator
An assumable mortgage is a type of home loan that allows a buyer to take over, or "assume," the seller's existing mortgage, including its interest rate and terms. This is particularly advantageous when current market interest rates are significantly higher than the rate on the seller's existing loan.
How it Works:
Typically, when a home is sold, the seller's mortgage is paid off with the proceeds from the sale, and a new mortgage is originated for the buyer. With an assumable mortgage, the buyer essentially steps into the seller's shoes, taking on the existing loan. The loan is technically "re-underwritten" or "assumed" by the new borrower, but the favorable interest rate is preserved.
When is it Beneficial?
The primary benefit of assuming a mortgage arises from interest rate differentials. If market rates have risen substantially since the original loan was taken out, the existing loan's lower rate can offer significant savings to the buyer. This calculator helps quantify those potential savings.
Key Factors for Assumption:
Loan Type: Not all mortgages are assumable. FHA and VA loans are generally assumable, while conventional loans often are not, or have strict requirements.
Lender Approval: The lender must approve the buyer's creditworthiness to assume the loan. The buyer must qualify based on their own financial standing.
Down Payment: The buyer typically pays the seller the difference between the agreed-upon sale price and the remaining loan balance, plus any closing costs associated with the assumption.
How the Calculator Works:
This calculator estimates the potential savings associated with assuming a mortgage. It compares the cost of the existing loan (at its original rate) with the cost of a new loan at the current market rate, using the remaining loan balance and term.
Calculations:
Monthly Payment for Existing Loan: We first calculate the monthly payment for the seller's existing loan using the standard mortgage payment formula (M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]), where P is the remaining loan balance, i is the monthly interest rate (original interest rate divided by 12), and n is the total number of remaining payments (loan term remaining in years multiplied by 12).
Monthly Payment for New Loan: We then calculate what the monthly payment *would be* for a new loan with the same remaining balance and term, but at the current market interest rate.
Monthly Savings: The difference between the monthly payment of the new loan and the monthly payment of the existing loan gives the monthly savings.
Annual Savings: Monthly savings multiplied by 12.
Total Savings: Monthly savings multiplied by the total number of remaining payments (n).
Disclaimer: This calculator provides an estimate based on the inputs provided. Actual savings may vary due to closing costs, lender fees, specific loan servicing adjustments, and the precise terms of the assumption agreement. Always consult with a mortgage professional for personalized advice.
function calculateAssumableMortgage() {
var originalLoanBalance = parseFloat(document.getElementById("originalLoanBalance").value);
var remainingLoanBalance = parseFloat(document.getElementById("remainingLoanBalance").value);
var originalInterestRate = parseFloat(document.getElementById("originalInterestRate").value) / 100;
var currentMarketRate = parseFloat(document.getElementById("currentMarketRate").value) / 100;
var loanTermRemaining = parseInt(document.getElementById("loanTermRemaining").value, 10);
var annualSavingsElement = document.getElementById("annualSavings");
var totalSavingsElement = document.getElementById("totalSavings");
annualSavingsElement.innerText = "–";
totalSavingsElement.innerText = "–";
if (isNaN(originalLoanBalance) || isNaN(remainingLoanBalance) || isNaN(originalInterestRate) || isNaN(currentMarketRate) || isNaN(loanTermRemaining) ||
originalLoanBalance < 0 || remainingLoanBalance < 0 || originalInterestRate < 0 || currentMarketRate < 0 || loanTermRemaining originalLoanBalance) {
alert("Remaining loan balance cannot be greater than the original loan balance.");
return;
}
var monthlyInterestRateOriginal = originalInterestRate / 12;
var numberOfPayments = loanTermRemaining * 12;
// Calculate monthly payment for the *existing* loan based on remaining balance and original rate
var existingMonthlyPayment = 0;
if (monthlyInterestRateOriginal > 0) {
existingMonthlyPayment = remainingLoanBalance * (monthlyInterestRateOriginal * Math.pow(1 + monthlyInterestRateOriginal, numberOfPayments)) / (Math.pow(1 + monthlyInterestRateOriginal, numberOfPayments) – 1);
} else {
existingMonthlyPayment = remainingLoanBalance / numberOfPayments;
}
// Calculate what the monthly payment *would be* for a *new* loan at the current market rate
var monthlyInterestRateCurrent = currentMarketRate / 12;
var newMonthlyPayment = 0;
if (monthlyInterestRateCurrent > 0) {
newMonthlyPayment = remainingLoanBalance * (monthlyInterestRateCurrent * Math.pow(1 + monthlyInterestRateCurrent, numberOfPayments)) / (Math.pow(1 + monthlyInterestRateCurrent, numberOfPayments) – 1);
} else {
newMonthlyPayment = remainingLoanBalance / numberOfPayments;
}
var monthlySavings = newMonthlyPayment – existingMonthlyPayment;
// Ensure savings are not negative (in case market rate is lower, though this calculator is for higher rates)
if (monthlySavings < 0) {
monthlySavings = 0;
}
var annualSavings = monthlySavings * 12;
var totalSavings = monthlySavings * numberOfPayments;
annualSavingsElement.innerText = "$" + annualSavings.toFixed(2);
totalSavingsElement.innerText = "$" + totalSavings.toFixed(2);
}