Transferable mortgages

Home loan interest rates have increased in the past. Many borrowers are insisting on signing fixed rate contracts, so that they can insure themselves against any increase in interest rates in the future.

If they have called right and the interest rates do rise more than the higher interest rates they have agreed to pay on a fixed rate loan, they will gain significantly. The only problem with this is that the gain is available only as long as they continue to own the property. When they decide to sell the property the benefit ceases. It is to overcome this constraint that the instrument of assumable loans has been devised wherein the borrower has the right to pass on the fixed rate loan to a new buyer of the property (subject to the credit approval of the buyer by the lender) .

Since the loan will be 'assumed' by the new buyer only if there is a benefit, it increases the value of the property where an assumable mortgage is available. Thus a borrower who called right on interest rates is able to encash the value of his decision in the form of an enchanced property valuation.