This company can help you get the low mortgage rates of years ago
Consider a typical home in a typical American community that sells to a new owner who takes out a typical mortgage. The monthly payment will be about $2,700, according to a recent analysis from Redfin.
But the person who’s selling the home probably has a monthly payment that’s as much as $1,000 less, if they bought the home a few years ago at a rock-bottom low rate of 2% to 3% or refinanced during that period.
Wouldn’t it be nice to turn back time?
A new company offers to do just that. RetroRate offers a software tool that scans public real estate listings on websites like Zillow or Realtor.com to show which homes for sale have assumable mortgages – those that can be taken over by a home’s new owner.
Most mortgages guaranteed by government agencies, like the Department of Veterans Affairs or the Federal Housing Agency, can be assumed, as can a very few guaranteed by Fannie Mae and Freddie Mac.
Most agents and others in the real estate industry know such loans are out there, but they can be tricky to find. Most homeowners aren’t accustomed to sharing details about their mortgages when they sell their home.
Across a sample of 10 states, RetroRate estimates that more than 22% have an assumable loan with an average interest rate of 4.42%, which works out to average monthly savings of $1,037.
Drawbacks to assumable mortgages
There are reasons buyers and their agents may shy away from an assumable mortgage, however. The most crucial is that they can take time to process. That’s because the company responsible for transitioning the mortgage to the new buyer is not a lender but the existing mortgage servicer.
Servicers are the companies that handle mortgage payments, making sure that they’re paid on time and that a borrower’s insurance premiums and taxes are taken care of. Their business processes aren’t set up to work with borrowers before they become owners, and they usually don’t have many staff members dedicated to handling assumptions.
RetroRate makes its money by offering a concierge service. For a fee equal to 1% of the purchase price of the home, the company walks the buyer and the seller through the entire process, said Andy Taylor, RetroRate’s founder. Taylor is an industry veteran, having spent time at Redfin and CreditKarma.
The complaints about servicers get no argument from Courtney Thompson, executive vice president at CMG Servicing. She likens the current interest in assumable mortgages to the years after the financial crisis of the late 2000s, when servicers had to help homeowners who could no longer afford their homes but wanted to avoid foreclosure: a new, time-intensive business process they were simply ill-equipped to manage.
Still, Thompson said in an interview, “math is math. People should do (assumptions) if they can, and it works for all sides.”
'Piggyback' mortgages for the 'equity gap'
Another key challenge is that mortgages that can be assumed are usually smaller than the purchase price of the home today. Consider a home purchased in 2022 for $500,000, using a $450,000 mortgage. There may be $400,000 left on that mortgage – but the home is probably now worth more like $600,000. The buyers will have to either cover the difference with money they pay out of pocket, or take out a small second mortgage or other kind of loan.
That’s the biggest concern for real estate agent Andi DeFelice, who works with many first-time buyers as owner and broker of Exclusive Buyers Realty in Savannah, Georgia.
For the lower monthly payment alone, DeFelice said, she’d love to consider a tool like RetroRate. But if it comes to having to put down hundreds of thousands in equity, an assumable mortgage may simply be out of reach for many buyers. Yet “it could definitely be something to put in our toolbox,” she told Paste BN.
Evan Tando is a San Diego-based mortgage broker and real estate agent who firmly believes assumable mortgages help not only buyers but sellers as well.
He was early to recognize the potential in assumptions, when interest rates started spiking a few years ago. The process could take as much as six months, he said. Now it’s a bit shorter – as little as 45 days in some cases – but a buyer should definitely be prepared for a longer process than with a new mortgage, he says.
Tando had a chance to see how RetroRate's concierge team worked when it assisted him on a listing with an assumable mortgage, and thinks the company has great promise. For buyers, he said, assumable mortgages are a “game changer.” But they may also change the calculus for sellers.
“I think it is very, very important if you're selling a home to be sure that you have a listing agent that takes the time, takes advantage of really marketing that assumable loan,” Tando said. Even if a seller doesn’t wind up making use of the fact that her existing mortgage is assumable, the increased interest it would likely spark should drive up the price of the home, he said.
“Knowing what's out there is really eye-opening, especially if you're in the home search,” Taylor said. “These things are out there and they're really a great deal. It's just about finding that gold.”