For example, a borrower taking a 6.5 percent 30-year fixed-rate mortgage might be willing to pay 6.875 percent for the right to allow a home buyer to take it over when he sells his house. The higher rate is akin to an insurance premium. If market rates are above 16 percent when he sells, as they were in 1981, he will save a bundle.

An assumable mortgage has some resemblance to a portable mortgage. If you sell your home and your mortgage is assumable, it can be transferred to the buyer; if it is portable, it can be transferred to a new property you buy. Portability is of no value if you decide to rent, go to a nursing home, or die, whereas an assumable mortgage retains its value in these situations. On the other hand, some portion of the value of an assumable mortgage must be shared with the purchaser. A mortgage that is both assumable and portable would have enhanced value.

Lenders who offer an assumability option will require that any new borrower meet the lender's qualification requirements. Borrowers purchasing the option will need to be confident that the lender won't tighten its requirements when market rates increase. The best assurance would be a commitment to accept approval under one of the automated underwriting systems developed by Fannie Mae or Freddie Mac.

Loans insured by FHA or guaranteed by VA have always been assumable. During periods when borrowers are concerned about future rate increases, this gives them an edge.

FHA loans closed before Dec. 14, 1989, and VA loans closed before March 1, 1988, are assumable by anyone. Buyers who assume these mortgages don't have to meet any requirements at all, but the seller remains responsible for the mortgage if the buyer doesn't pay.

Any seller who allows assumption by a buyer without a release of liability is looking for trouble. Even if the buyer pays, and that is a crapshoot, the seller's ability to obtain another mortgage will be prejudiced by his continued liability on the old one.

WARNING: The release of liability must be in writing, and you must preserve the document. This will protect you in the event that the new borrower defaults and the collection agency comes after you – it knows nothing about your release of liability. This happens!

If an old FHA or VA is attractive to a buyer, the seller can request that the agency underwrite the buyer. If the buyer is approved, the seller will be released from liability. At this point, there can't be many of these loans left with balances large enough to be attractive to buyers.

Assumption of FHA and VA loans closed after the dates shown above requires approval of the buyer by the agencies. The process is much the same as it would be for a new borrower. Upon approval of the buyer and sale of the property, the seller is relieved of liability. FHA allows lenders to charge a $500 assumption fee and a fee for the credit report. VA allows a $255 processing fee and a $45 closing fee, and the VA itself receives a funding fee of 1/2 of 1 percent of the loan balance.

FHA and VA loans that were closed during the low-rate years 2000-2003 will become attractive targets for assumption if interest rates continue to rise. Potential sellers who have one of these loans can use the spreadsheet on my web site to estimate how much the assumption would be worth to a potential buyer.