Assumable mortgage is a mortgage that can be passed on from one owner to another. For example, if you put in an offer for a property and the real estate agent states that there is a mortgage on the house that is assumable, it means that the mortgage can be passed on to you, should you still want to buy the house.
The advantage of assumable mortgages is that you do not have to look around for a finance institution to mortgage your property and on most occasions, assumable mortgages carry a very good interest rate compared to a new one. However, the disadvantage of an assumable mortgage is that you cannot assume a mortgage unless you have a big enough down payment to cover the difference the value of the house and the amount of the mortgage. If you do not have the funds for a big enough down payment, you will have to negotiate a second mortgage, which in general should be avoided. Second mortgages generally come with a much higher interest rate and having to take one would mean negating any advantage you receive from assuming the original mortgage. Also when you assume a mortgage you assume it as is, which means that it may not have some of the options you would like to have. Thus, before you assume a mortgage, thoroughly read through the contract and make sure it is the best option for you.