What Is an Assumable Mortgage?

An assumable mortgage is a type of financing arrangement whereby an outstanding mortgage and its terms are transferred from the current owner to a buyer. By assuming the previous owner’s remaining debt, the buyer can avoid obtaining their own mortgage. Different types of loans can qualify as assumable mortgages, though there are some special considerations to keep in mind.

Understanding Assumable Mortgages

Many homebuyers typically take out a mortgage from a lending institution to finance the purchase of a home or property. The contractual agreement for repaying the loan includes the interest that the borrower must pay, as well as the principal repayments to the lender.

If the homeowner decides to sell their home later, they may be able to transfer their mortgage to the homebuyer. In this case, the original mortgage taken out is assumable.

An assumable mortgage allows a homebuyer to assume the current principal balance, interest rate, repayment period, and any other contractual terms of the seller’s mortgage. Rather than going through the rigorous process of obtaining a home loan from the bank, a buyer can take over an existing mortgage.

There could be a cost-saving advantage if current interest rates are higher than the interest rate on the assumable loan. In a period of rising interest rates, the cost of borrowing also increases. When this happens, borrowers will face high interest rates on any loans approved. Therefore, an assumable mortgage is likely to have a lower interest rate, an attractive feature to buyers. If the assumable mortgage has a locked-in interest rate, it will not be impacted by rising interest rates. A mortgage calculator can be a good resource to budget for the monthly cost of your payment.

What Types of Loans Are Assumable?

Some of the most popular types of mortgages are assumable: Federal Housing Authority (FHA), Veterans Affairs (VA), and the U.S. Department of Agriculture (USDA). Buyers who wish to assume a mortgage from a seller must meet specific requirements and receive approval from the agency sponsoring the mortgage.

FHA loans

FHA loans are assumable when both transacting parties meet the requirements for the assumption. For instance, the property must be used by the seller as their primary residence. Buyers must first verify that the FHA loan is assumable and then apply as they would for an individual FHA loan. The seller’s lender will verify that the buyer meets the qualifications, including being creditworthy. If approved, the mortgage will be assumed by the buyer. However, unless the seller is released from the loan, they are still responsible for it.

VA loans

The Department of Veterans Affairs offers mortgages to qualified military members and spouses of military members. However, to assume a VA loan, the buyer need not be a member of the military to qualify. Although, the lender and the regional VA loan office will need to approve the buyer for the loan assumption, and most often, buyers who assume VA loans are military members.

For loans initiated before March 1, 1988, buyers may freely assume the VA loan. In other words, the buyer does not need the approval of the VA or the lender to assume the mortgage.

USDA loans

USDA loans are offered to buyers of rural properties. They require no down payment and often have low interest rates. To assume a USDA loan, the buyer must meet the standard qualifications, such as meeting credit and income requirements, and receive approval from the USDA to transfer title. The buyer may assume the existing rate of interest and loan terms or new rates and terms. Even if the buyer meets all requirements and received approval, the mortgage cannot be assumed if the seller is delinquent on payments.

Advantages and Disadvantages of Assumable Mortgages

The advantages of acquiring an assumable mortgage in a high-interest rate environment are limited to the amount of existing mortgage balance on the loan or the home equity. For example, if a buyer is purchasing a home for $250,000 and the seller’s assumable mortgage only has a balance of $110,000, the buyer will need to make a down payment of $140,000 to cover the difference. Or the buyer will need a separate mortgage to secure the additional funds.

A disadvantage is when the home’s purchase price exceeds the mortgage balance by a significant amount, requiring the buyer to obtain a new mortgage. Depending on the buyer’s credit profile and current rates, the interest rate may be considerably higher than the assumed loan.

Usually, a buyer will take out a second mortgage on the existing mortgage balance if the seller’s home equity is high. The buyer may have to take out the second loan with a different lender from the seller’s lender, which could pose a problem if both lenders do not cooperate with each other. Also, having two loans increases the risk of default, especially when one has a higher interest rate.

If the seller’s home equity is low, however, the assumable mortgage may be an attractive acquisition for the buyer. If the value of the home is $250,000 and the assumable mortgage balance is $210,000, the buyer need only put up $40,000. If the buyer has this amount in cash, they can pay the seller directly without having to secure another credit line.

Assumable Mortgage Transfer Approval

The final decision over whether an assumable mortgage can be transferred is not left to the buyer and seller. The lender of the original mortgage must approve the mortgage assumption before the deal can be signed off on by either party. The homebuyer must apply for the assumable loan and meet the lender’s requirements, such as having sufficient assets and being creditworthy.

If approved, the title of the property is transferred to the buyer who makes the required monthly repayments to the bank. If the transfer is not approved by the lender, the seller must find another buyer that is willing to assume his mortgage and has good credit.

A mortgage that has been assumed by a third party does not mean that the seller is relieved of the debt payment. The seller may be held liable for any defaults which, in turn, could affect their credit rating. To avoid this, the seller must release their liability in writing at the time of assumption, and the lender must approve the release request releasing the seller of all liabilities from the loan.

Assumable Mortgages FAQs

What does assumable mean?

Assumable refers to when one party takes over the obligation of another. In terms of an assumable mortgage, the buyer assumes the existing mortgage of the seller. When the mortgage is assumed, the seller is often no longer responsible for the debt.

What does not assumable mean?

Not assumable means that the buyer cannot assume the existing mortgage from the seller. Conventional loans are non-assumable. Some mortgages have non-assumable clauses, preventing buyers from assuming mortgages from the seller.

How does an assumable loan work?

To assume a loan, the buyer must qualify with the lender. If the price of the house exceeds the remaining mortgage, the buyer must remit a down payment that is the difference between the sale price and the mortgage. If the difference is substantial, the buyer may need to secure a second mortgage.

How do I know if my mortgage is assumable?

There are certain types of loans that are assumable. For example, USDA, VA, and FHA loans are assumable. Each agency has specific requirements that both parties must fulfill for the loan to be assumed by the buyer. The USDA requires that the house is in a USDA-approved area, the seller must not be delinquent on payments, and the buyer must meet certain income and credit limits. The buyer should first confirm with the seller and the seller’s lender if the loan is assumable.

Is an assumable mortgage good?

When current interest rates are higher than an existing mortgage’s rates, assuming a loan may be the favorable option. Also, there are not as many costs due at closing. On the other side, if the seller has a considerable amount of equity in the home, the buyer will either have to pay a large down payment or secure a second mortgage for the balance not covered by the existing mortgage.

The Bottom Line

An assumable mortgage may be attractive to buyers when current mortgage rates are high and because closing costs are considerably lower than those associated with traditional mortgages. However, if the owner has a lot of equity in the home, the buyer may need to pay a substantial down payment or secure a new loan for the difference in the sale price and the existing mortgage. Also, not all loans are assumable, and if so, the buyer must still qualify with the agency and lender. If the benefits outweigh the risks, an assumable mortgage might be the best option for homeownership.

What Is an Ascending Triangle?

An ascending triangle is a chart pattern used in technical analysis. It is created by price moves that allow for a horizontal line to be drawn along the swing highs and a rising trendline to be drawn along the swing lows. The two lines form a triangle. Traders often watch for breakouts from triangle patterns. The breakout can occur to the upside or downside.

Ascending triangles are often called continuation patterns since price will typically break out in the same direction as the trend that was in place just prior to the triangle forming.

An ascending triangle is tradable in that it provides a clear entry point, profit target, and stop-loss level. It may be contrasted with a descending triangle.

What Does the Ascending Triangle Tell You?

An ascending triangle is generally considered to be a continuation pattern, meaning that the pattern is significant if it occurs within an uptrend or downtrend. Once the breakout from the triangle occurs, traders tend to aggressively buy or sell the asset depending on which direction the price broke out.

Increasing volume helps to confirm the breakout, as it shows rising interest as the price moves out of the pattern.

A minimum of two swing highs and two swing lows are required to form the ascending triangle’s trendlines. But a greater number of trendline touches tends to produce more reliable trading results. Since the trendlines are converging on one another, if the price continues to move within a triangle for multiple swings, the price action becomes more coiled, likely leading to a stronger eventual breakout.

Volume tends to be stronger during trending periods than during consolidation periods. A triangle is a type of consolidation, and therefore volume tends to contract during an ascending triangle. As mentioned, traders look for volume to increase on a breakout, as this helps confirm the price is likely to keep heading in the breakout direction. If the price breaks out on low volume, that is a warning sign that the breakout lacks strength. This could mean the price will move back into the pattern. This is called a false breakout.

For trading purposes, an entry is typically taken when the price breaks out. Buy if the breakout occurs to the upside, or short/sell if a breakout occurs to the downside. A stop loss is placed just outside the opposite side of the pattern. For example, if a long trade is taken on an upside breakout, a stop loss is placed just below the lower trendline.

A profit target can be estimated based on the height of the triangle added or subtracted from the breakout price. The thickest part of the triangle is used. If the triangle is $5 high, add $5 to the upside breakout point to get the price target. If the price breaks lower, the profit target is the breakout point less $5.

Example of How to Interpret the Ascending Triangle

Here an ascending triangle forms during a downtrend, and the price continues lower following the breakout. Once the breakout occurred, the profit target was attained. The short entry or sell signal occurred when the price broke below the lower trendline. A stop loss could be placed just above the upper trendline.

Wide patterns like this present a higher risk/reward than patterns that get substantially narrower as time goes on. As a pattern narrows, the stop loss becomes smaller since the distance to the breakout point is smaller, yet the profit target is still based on the largest part of the pattern.

The Difference Between an Ascending Triangle and a Descending Triangle

These two types of triangles are both continuation patterns, except they have a different look. The descending triangle has a horizontal lower line, while the upper trendline is descending. This is the opposite of the ascending triangle, which has a rising lower trendline and a horizontal upper trendline.

Limitations of Trading the Ascending Triangle

The main problem with triangles, and chart patterns in general, is the potential for false breakouts. The price may move out of the pattern only to move back into it, or the price may even proceed to break out the other side. A pattern may need to be redrawn several times as the price edges past the trendlines but fails to generate any momentum in the breakout direction.

While ascending triangles provide a profit target, that target is just an estimate. The price may far exceed that target, or fail to reach it.

Psychology of the Ascending Triangle

Like other chart patterns, ascending triangles indicate the psychology of the market participants underlying the price action. In this case, buyers repeatedly drive the price higher until it reaches the horizontal line at the top of the ascending triangle. The horizontal line represents a level of resistance—the point where sellers step in to return the price to lower levels.

As the price drops downward from the horizontal resistance level, buyers begin to show their resolve, and the price fails to reach the recent low, with the trend turning upward once again at a higher swing low. In other words, the upward-sloping trendline that forms the lower boundary of the ascending triangle is acting as support—the level where buyers jump in and prevent the price from falling any lower.

In a well-defined ascending triangle pattern, the price bounces between the horizontal resistance line and the lower trendline. The lines of the triangle eventually converge, setting the stage for a showdown between upward and downward pressure that could determine which direction the price will move out of the pattern. As it approaches the vertex of the triangle, the price will either break out above the resistance level, suggesting additional gains ahead, or it will fall below the support level, increasing the likelihood that the price will decline.

The Bottom Line

An ascending triangle is a technical analysis chart pattern that occurs when the price of an asset fluctuates between a horizontal upper trendline and an upward-sloping lower trendline. Since the price has a tendency to break out in the same direction as the trend in place before the formation of the triangle, ascending triangles are often called continuation patterns. Traders often wait for the price to break above or below the pattern before entering a position. The ascending triangle pattern is particularly useful for traders because it suggests a clear entry point, profit target, and stop-loss level.

What Is Attrition in Business?

The term attrition refers to a gradual but deliberate reduction in staff numbers that occurs as employees leave a company and are not replaced.

It is commonly used to describe the downsizing of a firm’s employee pool by human resources (HR) professionals. In this case, downsizing is voluntary, where employees either resign or retire and aren’t replaced by the company.

Understanding Attrition

Employee attrition refers to the deliberate downsizing of a company’s workforce. Downsizing happens when employees resign or retire. This type of reduction in staff is called a hiring freeze. It is one way a company can decrease labor costs without the disruption of layoffs.

There are a number of reasons why employee attrition takes place. They include:

• Unsatisfactory pay and/or benefits
• Lack of opportunity
• Poor workplace conditions
• Poor work-life balance
• Illness and death
• Retirement
• Relocation

Types of Attrition

Voluntary Attrition

Voluntary attrition occurs when employees leave a company of their own volition. Employees leaving voluntarily may indicate that there are problems at the company. Or, it may mean that people have personal reasons for departing that are unrelated to the business.

For example, some employees voluntarily leave when they get a new job elsewhere. They may be moving to a new area which makes the commute impossible. They might have decided to try a different career and therefore need a different type of job.

Voluntary attrition can also occur when employees retire. This is also referred to as natural attrition. Unless a company experiences an unusually high rate of early retirements, employees retiring shouldn’t be a cause for concern for management.

Involuntary Attrition

Involuntary attrition occurs when the business dismisses employees. This can happen because of an employee’s poor or disruptive performance. Dismissal might be tied to an employee’s misconduct.

Companies may have to eliminate an employee’s position. Or, they might have to lay off employees due to worrisome economic conditions.

Internal Attrition

Internal attrition refers to movement out of one department or division and into another. The employee isn’t leaving the company. They’re simply making a move within it.

For instance, internal attrition can occur when an employee gets promoted to a different management level. Or, they move laterally to a different section because a job there was more suitable.

Internal attrition can signal that a company offers good opportunities for career growth. On the other hand, if one department has a high internal attrition rate, it may be experiencing problems. The company should investigate and address them, if need be.

Demographic-Related Attrition

Demographic-related attrition results when people identified with certain demographic groups depart a company unexpectedly and quickly. These could be women, ethnic minorities, veterans, older employees, or those with disabilities.

Such an exodus could mean that employees have encountered some form of harassment or discrimination. That should be of concern to all companies because such behavior can undermine a positive workplace environment and successful business operations.

Action should be taken quickly to understand what caused such departures. Rectifying demographic-related attrition is a must because inclusion should be a top goal of every company. Plus, a company can put a halt to the loss of employees of great value and promise. Diversity training can help.

Customer Attrition

While not related to employee attrition, it’s important that a business also be aware of customer attrition.

Customer attrition happens when a company’s customer base begins to shrink. The rate of customer attrition is sometimes referred to as the churn rate. Customer attrition can mean that a company is in trouble and could suffer a loss of revenue.

Customer attrition can take place for a variety of reasons:

• Loyal customers switch their preference to products of another company
• Aging customers aren’t being replaced by younger ones
• Bad customer service
• Changes in product lines
• Failure to update product lines
• Poor product quality

Benefits of Attrition

Attrition has its positive aspects. By its simplest definition, it’s a natural diminishing of the workforce. This can be welcome when the economy is in bad shape or a recession looms and, if not for attrition, a company would face the prospect of having to lay off employees (when it doesn’t want to lose them).

Here are other times when attrition might help:

• If one company acquires another and must deal with redundancies.
• If a company redirects its vision toward a new goal and must restructure or reduce the workforce.
• When new employees are needed to refresh a workplace environment with new ideas and new energy.
• When a company seeks natural opportunities to better diversify a department or division.
• When employees with poor attitudes or performance should be removed to improve workplace culture, reduce costs, or make room for new hires who are a great fit.

The Attrition Rate

The attrition rate is the rate at which people leave a company during a particular period of time. It’s useful for a business to track attrition rates over time so it can see whether departures are increasing or decreasing. A change in the attrition rate can alert management to potential problems within the company that may be causing employee departures.

The formula for the attrition rate is:

Attrition rate = number of departures/average number of employees¹ x 100

Say that 25 employees left ABC Company last year. In addition, the company had an average of 250 employees for the year ((200 + 300)/2).

With those figures, you can now calculate the attrition rate:

Attrition rate = 25/250 x 100

Attrition rate = 0.1 x 100

Attrition rate = 10%

¹ To calculate the average number of employees, add the number that existed at the beginning of the time period to the number that existed at the end of the time period. Then, divide by two.

Why It’s Important to Measure Attrition

By measuring attrition rates, a company may pinpoint problems that are causing voluntary attrition. That’s important because the costs associated with losing valuable employees whom you’d like to retain can be staggering.

For example, the cost to hire and train a new employee when one employee voluntarily departs can be one-half to two times that employee’s annual salary.

Company profits can be affected negatively when knowledgeable, experienced employees leave and productivity suffers.

Loss of customers can go hand in hand with loss of valued employees. That can mean another hit to profits tied to former employees who understood company products and services, and how to sell them.

Attrition vs. Layoffs

Sometimes, employees choose to leave an existing job to take a new one or because they’re retiring. An attrition policy takes advantage of such voluntary departures to reduce overall staff.

Laying off employees doesn’t involve a voluntary action on the part of the employee. However, layoffs do result in attrition when a company doesn’t immediately hire as many new employees as it laid off.

Layoffs occur when a company is faced with a financial crisis and must cut its workforce to stay afloat.

Sometimes, due to changes in company structure or a merger, certain departments are trimmed or eliminated. Rather than relying on natural attrition associated with voluntary employee departures, this usually requires layoffs.

Attrition vs. Turnover

Turnover takes place in a company’s workforce when people leave their job and are replaced by new employees. In such instances, there is no attrition.

Employee turnover is generally counted within a one-year period. This loss of talent occurs in a company for many reasons. As with voluntary attrition, employees may retire, relocate, find a better job, or change their career.

Companies can study turnover to make needed changes. For instance, many employees leaving within a short period of time probably signals issues within a company that must be dealt with.

Just as with voluntary attrition, management can use turnover information to initiate changes that will make the company a more amenable place for new and existing employees.

The Bottom Line

Attrition refers to the gradual but deliberate reduction in staff that occurs as employees leave a company and aren’t replaced.

Employees may leave voluntarily or involuntarily. Or, they may simply move from one department to another. In that case, attrition occurs when the former department doesn’t replace the employee. Employees may also leave for reasons of discrimination.

Calculating and tracking attrition rates can be useful to companies. High attrition rates indicate more people are leaving. They can signal that some problem is causing these departures and must be dealt with to improve the working environment.

Of course, a certain level of attrition can be helpful because it can avoid the need for layoffs in difficult economic times.

What Is Assurance?

Assurance refers to financial coverage that provides remuneration for an event that is certain to happen. Assurance is similar to insurance, with the terms often used interchangeably. However, insurance refers to coverage over a limited time, whereas assurance applies to persistent coverage for extended periods or until death. Assurance may also apply to validation services provided by accountants and other professionals.

How Assurance Works

One of the best examples of assurance is whole life insurance as opposed to term life insurance. In the U.K., “life assurance” is another name for life insurance. The adverse event that both whole life and term life insurance deal with is the death of the person the policy covers. Since the death of the covered person is certain, a life assurance policy (whole life insurance) results in payment to the beneficiary when the policyholder dies. 

A term life insurance policy, however, covers a fixed period—such as 10, 20, or 30 years—from the policy’s purchase date. If the policyholder dies during that time, the beneficiary receives money, but if the policyholder dies after the term, no benefit is received. The assurance policy covers an event that will happen no matter what, while the insurance policy covers a covered incident that might occur (the policyholder might die within the next 30 years).

Types of Assurance

Assurance can also refer to professional services provided by accountants, lawyers, and other professionals. These professionals assure the integrity and usability of documents and information produced by businesses and other organizations. Assurance in this context helps companies and other institutions manage risk and evaluate potential pitfalls. Audits are one example of assurance provided by such firms for businesses to assure that information provided to shareholders is accurate and impartial.

Assurance services are a type of independent professional service usually provided by certified or chartered accountants, such as certified public accountants (CPAs). Assurance services can include a review of any financial document or transaction, such as a loan, contract, or financial website. This review certifies the correctness and validity of the item being reviewed by the CPA.

Example of Assurance

As an example of assurance services, say investors of a publicly-traded company grow suspicious that the company is recognizing revenue too early. Early realization of revenue might lead to positive financial results in upcoming quarters, but it can also lead to worse results in the future.

Under pressure from shareholders, company management agrees to hire an assurance firm to review its accounting procedures and systems to provide a report to shareholders. The summary will assure shareholders and investors that the company’s financial statements are accurate and revenue recognition policies are in line with generally accepted accounting principles (GAAP).

The assurance firm reviews the financial statements, interviews accounting department personnel, and speaks with customers and clients. The assurance firm makes sure that the company in question has followed GAAP and assures stakeholders that the company’s results are sound.

Assurance vs. Negative Assurance

Assurance refers to the high degree of certainty that something is accurate, complete, and usable. Professionals affirm these positive assurances after careful review of the documents and information subject to the audit or review.

Negative assurance refers to the level of certainty that something is accurate because no proof to the contrary is present. In other words, since there is no proof that the information is inaccurate or that deceptive practices (e.g., fraud) occurred, it is presumed to be accurate.

Negative assurance usually follows assurance of the same set of facts and is done to ensure that the first review was appropriate and without falsifications or gross errors. Therefore, the amount of scrutiny is not as intense as the first review because the negative assurance auditor purposefully looks for misstatements, violations, and deception.

Assurance FAQs

What Does Life Assurance Mean?

Assurance has dual meanings in business. It refers to the coverage that pays a benefit for a covered event that will eventually happen. Assurance also refers to the assurance given by auditing professionals regarding the validity and accuracy of reviewed documents and information. These auditors exercise great care to make these positive assurances.

What Is an Example of Assurance?

Whole life insurance is perhaps one of the best-understood examples of assurance. As long as the policy remains in force, this type of insurance guarantees to pay a death benefit at the death of the insured, despite how long that event takes to occur.

What Is Meant by Assurance in Auditing?

Assurance in auditing refers to the opinions issued by a professional regarding the accuracy and completeness of what’s analyzed. For example, an accountant assuring that financial statements are accurate and valid asserts that they have reviewed the documents using acceptable accounting standards and principles.

What Is the Difference Between Life Insurance and Assurance?

Life insurance and life assurance are often used interchangeably and sometimes refer to the same type of contract. However, life insurance is coverage that pays a benefit for the death of the insured if the death occurs during the limited, contractual term. Assurance or life assurance is coverage that pays a benefit upon the death of the insured despite how long it takes for that death to occur.

What Kind of Company Is an Assurance Company?

An assurance company could be a life insurance/assurance company providing benefits upon the certain death of the insured, but commonly refers to an accounting or auditing firm providing assurance services to businesses and organizations. These services include complete and intense reviews of documents, transactions, or information. The purpose of these reviews is to confirm and assure the accuracy of what was reviewed.

The Bottom Line

Assurance is coverage that pays a benefit upon the eventual occurrence of a certain event. It also refers to a service rendered by a professional to confirm the validity and accuracy of reviewed documents and information. Assurances in auditing can help companies address risks and potential problems affecting the accuracy of their reporting. On the contrary, negative assurance is a less intense review that also provides a form of assurance. Negative assurance asserts that what was reviewed is accurate because nothing contradicting this claim exists.