When Your Loan Is Worth More Than Your Equity

If you have a low-rate mortgage in a high-rate market, buyers may be interested in more than just your property—they may want your loan. This page explains what that means, how loan transfers work, and the critical distinction between assumption and subject-to.

When Your Loan Terms Become the Asset

When mortgage rates climb well above what you're paying on your existing loan, something unexpected happens: your loan terms become valuable in their own right.

In markets where new mortgages cost 7% or more, a loan locked in at 3% or 3.5% represents real savings for any buyer who can access it. That rate differential—the gap between what you're paying and what new borrowers face—translates to thousands of dollars in interest over the life of a loan.

This means buyers may be specifically interested in your loan, not just your property. The equity you've built matters, but in a high-rate environment, your loan terms might be the more compelling asset.

But having a valuable loan doesn't mean there's only one way to transfer it.

Two Ways to Transfer Your Loan—With Opposite Outcomes

When someone wants to "take over" your loan, there are actually two fundamentally different ways to do it. Understanding which one is on the table is essential.

The first is loan assumption: the buyer applies to your lender, qualifies for the loan, and formally takes it over. The lender approves the transfer. Done correctly, you can be released from liability entirely.

The second is subject-to: the buyer takes title and starts making payments, but the loan stays in your name. The lender isn't involved. You remain the borrower—legally responsible for that debt.

The tradeoff is time versus liability. Subject-to can close in days because it bypasses lender approval. Assumption takes weeks or months because the buyer must qualify. But only assumption offers a path to releasing your liability.

Which path is available to you depends, in part, on what type of loan you have.

Which Loans Can Actually Be Assumed

Not all loans offer the assumption option. Your loan type determines what's possible.

FHA, VA, and USDA loans are generally assumable. If you have one of these government-backed loans, a qualified buyer can apply to take it over with lender approval—and you can potentially be released from liability.

Conventional loans are different. They typically contain due-on-sale clauses that allow the lender to demand full payment when ownership transfers. This means formal assumption usually isn't available for conventional loans.

If you have a conventional loan and someone wants your financing, subject-to may be the only transfer option—which means you'd remain liable.

If You Have an Assumable Loan

If your loan is FHA, VA, or USDA, assumption is potentially available. With proper lender approval and an explicit release, you can transfer the loan entirely—exiting both the payments and the liability.

The buyer will need to qualify, much like applying for a new mortgage. And you'll need to request and obtain a formal release of liability, which isn't automatic even when assumption is approved.

For complete details on how assumption works, what buyers must qualify for, and how to obtain liability release, see Loan Assumption.

If Someone Proposes Subject-To

In a subject-to arrangement, your loan stays in your name. The buyer makes payments, but you remain the legal borrower. If they stop paying, the default and any foreclosure appear on your credit—not theirs.

Subject-to also technically triggers the due-on-sale clause, giving your lender the right to demand full payment. Whether they enforce it is uncertain, but the right exists.

For complete details on how subject-to works, the liability you retain, and the risks involved, see Subject-To Transactions.

The Equity Gap in Assumptions

When a buyer assumes your loan, they take over your loan balance—not the full purchase price. The difference, called the equity gap, must be covered by the buyer in cash or through a separate second mortgage.

For example, if your home is worth $400,000 and your loan balance is $250,000, the buyer needs to bring $150,000 plus closing costs. This limits the buyer pool to those with substantial cash or the ability to obtain secondary financing.

The value of your low rate is real, but buyers still need resources to access it.

Your Loan Is an Asset—But Transfer Method Matters

In today's rate environment, your loan terms may be more valuable to buyers than your equity. A rate locked in at 3% when new loans cost 7% represents significant savings over time—savings buyers are willing to pay for.

But how that value transfers—and what happens to your liability—depends entirely on which path you take.

With assumption, done properly, you can transfer the loan and exit completely. The buyer becomes the borrower. You're released.

With subject-to, you transfer payments but not the loan itself. You remain the borrower, liable for a debt attached to a property you no longer own.

The distinction isn't technical—it's fundamental. Before considering any offer involving your loan, understanding whether you're looking at assumption or subject-to is essential. The answer determines whether your loan becomes someone else's asset or remains your liability.

Related Pages

Understand the structures:

• Loan Assumption — how formal assumption works and how to be released from liability

• Subject-To Transactions — how subject-to works and the risks you retain

Evaluate offers:

• Red Flags and Warning Signs — what to watch for in any creative finance offer

• Questions to Ask Before Signing — specific questions for loan-transfer transactions