The mortgage assumption value ( MAV ) is the cash equivalent, at the current point-in-time, of all future savings That Could be Achieved by Assuming an existing low-interest-rate home mortgage loan Rather than Taking out a new Higher interest rate loan and Accounting for the time value of money. [1]

This value is associated with a specific mortgage and fluctuates as it affects the subject mortgage. The value of mortgage mortgages and mortgage mortgages in the United States is high. Similarly, the mortgage assumption value shrinks as well as the mortgage.

Calculation

Mortgage assumption value can be calculated as the net present value of the sum of the future monthly payment due to the assumable loan rate being lower than the prevailing new loan interest rate. The calculation may take different forms, below are two examples:

  1. Calculate the monthly payment for a new mortgage loan with the prevailing rate, current unpaid principal balance of the assumable loan, and remaining term in months on original assumable loan. Take the difference between this higher payment and the original assumable payment. Last, discount with the prevailing rate the series of monthly savings to current value at prevailing rates.
  2. Discount the remaining series of payments from the assumable loan using the prevailing rate as the discount rate. Then take the difference between this net present value and the actual unpaid principal balance. This also yields the mortgage assumption value and is computationally simpler than the first approach.

Example

An example using the illustrative 30-year fixed rate mortgage (Historically The Most common type of mortgage in the United States) [2] for comparison:

A $ 100,000 assumable mortgage loan with a 4.00% monthly loan payment of $ 477.42. In this example let’s say the loan is assumed after 3 years (36 months) and that the unpaid principal balance will have reduced to $ 94,499. Now calculate the payment at a prevailing rate of 6.00%, principal of $ 94,499 and term of 27 years (original 30 years less 3 years until assumption) and the hypothetical payment is $ 589.66. Take the difference between this hypothetical payment and the actual assumable payment to calculate a monthly savings of $ 112.24. The net asset value of the net asset value of the net asset value is $ 17,988.

See also

  • Mortgage note
  • Mortgage assumption

References

  1. Jump up^ “What is the Zumption Savings Box” . Retrieved 2014-06-13 .
  2. Jump up^ “Common Questions from First-time Homebuyers – HUD” . US Department of Housing and Urban Development . Retrieved 2014-06-13 .