Assumption Clause

DEFINITION of 'Assumption Clause'

A provision in a mortgage contract that allows the seller of a home to pass responsibility to the buyer of the home for the existing mortgage. In other words, the new homeowner assumes the existing mortgage. There are typically many conditions and a fee required in an assumption clause.

BREAKING DOWN 'Assumption Clause'

An assumption clause can be an attractive selling point for a homeowner if the interest rate on the existing mortgage is lower than current market interest rates. In addition, loan settlement costs for the buyer can be avoided. However, there are many hurdles to get over in an assumption. For example, most mortgages have due-on-sale clauses which prevent assumptions, and the remaining principal balance of the existing mortgage is likely to less than the sales price of the home.