Assumable Mortgage

Your house has a mortgage on it. You paid $200,000, borrowed $600,000, and are now selling the house for a cool million bucks. The $600,000 mortgage you have on your home was raised in an era with extremely low interest rates. In your case, just 4.5%. The buyer coming along, paying a million bucks for your house, in most states, has the legal right to assume your mortgage.

That is, as long as they agree to live by the same terms that you lived by, they can take over your mortgage and adopt it as one of their own. In the case where the buyer has $400,000 lying around, they can literally be done with the purchase after assuming your loan because their $400,000 will comprise the down payment.

Why would anyone want to assume a mortgage? Because the current mortgage environment has a cost structure much higher than the mortgage they want to assume. For example, the new environment might be charging 7% for a similar loan, and in the buyer's ability to assume the mortgage at 4.5%, they're saving 2.5% per year in rent costs on that $600,000, or something near $15,000 per year in interest cost savings, albeit pre-tax.