What does assumption refer to in a mortgage context?

In the context of mortgages, assumption refers to the process where one party takes over the mortgage obligations of another party. This typically occurs when a home buyer wishes to purchase a property that still has an existing mortgage. Instead of obtaining a new mortgage, the buyer assumes the current loan, agreeing to take on the responsibility of making payments under the same terms as the original borrower.

This can be advantageous for the buyer if the existing mortgage has a lower interest rate compared to current market rates. Additionally, assuming a mortgage can simplify the transaction, as it may not require the buyer to undergo the underwriting process associated with securing a new loan. This is particularly relevant in certain types of loans, such as FHA and VA loans, where mortgage assumption is allowed.

The other options do not accurately capture the essence of what assumption means in the mortgage context. For instance, altering the interest rate pertains to refinancing rather than assumption, prepayment refers to settling the loan balance early and is unrelated to the transfer of obligations, and transferring ownership relates more to the sale of property rather than the assumption of the mortgage itself.