What is the key difference between an assumable mortgage and a non-assumable mortgage?

The key difference between an assumable mortgage and a non-assumable mortgage lies in the ability to transfer the mortgage from the original borrower to a new borrower. An assumable mortgage allows the buyer to take over the seller’s existing mortgage along with its rates and terms, which can make it an attractive option in certain market conditions, especially if the original loan has a lower interest rate than the current market rates. This transferability means that the lender's approval is necessary, but the underlying debt remains the same, benefiting both the seller and the buyer during the transaction.

In contrast, a non-assumable mortgage does not allow this kind of transfer. When a home with a non-assumable mortgage is sold, the mortgage must be paid off at closing, meaning the new buyer cannot take over the existing terms of the loan. This distinction is significant for buyers who may want to step into a more favorable loan arrangement established by the original homeowner, making assumable mortgages potentially more advantageous in fluctuating interest rate environments.