How to Get a 3% Mortgage Rate in a 7% World
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Here's your Money Briefing for Monday, September 25th. I'm J.R. Whelan for The Wall Street Journal. Mortgage rates crossed 6% last year and have been above 7% for several weeks. That's brought the housing market to a crawl, with many buyers and sellers reluctant to make a move. But an often overlooked loan feature would allow them to take advantage of lower rates from years past.
It's the seller basically transferring their own mortgage to the buyer. And when they do that, the buyer keeps the rate that the seller had. So if it was 3% or 2.5%, They keep that.
How are high mortgage rates affecting housing market activity?
We'll talk to Wall Street Journal reporter Ben Isen after the break.
Homeowners reluctant to move because current mortgage rates are much higher than when they bought their home may be able to benefit from that lower rate after all. It's called an assumable loan, and Wall Street Journal banking reporter Ben Eisen joins me to discuss. So, Ben, the average 30-year mortgage has been rising steadily for some time now. It's currently more than 7%. What kind of an effect has that had on the housing market?
When you look at the housing market these days, there really just aren't a lot of transactions. The number of transactions is down sharply from a couple years ago when rates are low. And what's happening is you have buyers who are reluctant to buy because when mortgage rates went up so much, it just added so much to the monthly cost of buying a home. And then you have sellers who are also reluctant to sell.
What is an assumable loan and how does it let buyers keep a 3% rate?
People who bought when rates are low, they want to keep those low rates and Giving those up might mean buying a home and taking out a new mortgage at a higher rate. So it really just sort of slows down all of the turnover that you've seen in the housing market. And that's really kind of had a detrimental effect.
So how do these assumable loans work? How can homebuyers take advantage of rates, say, in the 3% range, which we haven't seen for several years?
So assumable loans are a kind of completely different transaction than you might think about when taking out a new loan to buy a house. Instead of the seller taking money and using that to pay off their mortgage and the buyer taking out a new mortgage to buy the house, you actually just have one mortgage.
Which types of mortgages are typically assumable and how common are they?
It's the... seller basically transferring their own mortgage to the buyer. And when they do that, the buyer keeps the rate that the seller had. So if it was 3% or 2.5%, they keep that. And the buyer ends up paying whatever the difference is between the sale price and the mortgage that's been transferred.
Now, these types of loans, they aren't new, but they seem like they would be beneficial to both the buyer and the seller. So why do so few people know about them?
Just to be clear about what an assumable loan is, it's a feature of certain types of loans. And these are generally loans that are part of government programs. If you think about a VA loan or an FHA loan, these come with assumable features.
What steps and lender requirements are involved in transferring an assumable loan?
Now, that only makes up about a fifth of all mortgages. But also when you think about what it takes to actually transfer it, there can be a lot of bureaucratic hoops to jump through. And there are a lot of reasons why it might not work.
So what does it take to transfer these loans?
So what you have to do is you have to work with the actual lender of the money to the seller. And you have to process the assumption itself, which means underwriting the buyer and making sure they qualify to assume the loan of the seller. And there can be paperwork, but it can be sort of a sluggish process.
In your story, you spotlight a startup called Roam. What role does it aim to play here?
So Roam is trying to kind of smooth out the bumps in all of this. One is actually kind of matching up buyers and sellers by having a database of assumable loans that buyers can browse and look for and basically putting that front and center in the actual home search process. But they're also trying to help get the assumptions done, which might mean working with the lender and kind of badgering them until they get it done, just taking care of all of the procedural work of it.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:01–1:06
2
How are high mortgage rates affecting housing market activity?
1:06–2:26
3
What is an assumable loan and how does it let buyers keep a 3% rate?
2:26–3:07
4
Which types of mortgages are typically assumable and how common are they?
3:07–3:48
5
What steps and lender requirements are involved in transferring an assumable loan?
3:48–5:42
6
How does the startup Roam streamline finding and processing assumable loans?
5:42–6:26
7
What costs, down‑payment challenges, and secondary‑loan needs should buyers expect?
6:26–7:23
8
Why are lenders hesitant about assumptions and when do they actually save buyers money?
7:23–8:03
Speakers
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