In a real estate transaction, what does it mean when a buyer assumes a mortgage?

When a buyer assumes a mortgage, it means that they take over the responsibility for the existing loan on the property. This arrangement allows the buyer to step into the seller’s position in the mortgage agreement, which often includes making payments under the same terms as the original borrower. This can be beneficial for the buyer if the existing mortgage has favorable interest rates compared to current market rates.

Assuming a mortgage may also relieve the seller of their obligation, which can be attractive in situations where the original borrower needs to relocate or sell the property quickly. This process typically requires the lender's approval, as they need to assess the new borrower's qualifications to ensure they can handle the mortgage payments.

Refinancing a loan involves the buyer obtaining a new loan, which replaces the original mortgage and can come with different terms, rates, and conditions; therefore, it is distinct from assuming an existing mortgage. Canceling the existing loan or defaulting on it are entirely different processes that do not support continuity in the buyer's responsibility for the mortgage.