Journal of Economics Intelligence And Technology

Abstract: Assumable mortgages are blowing up as a potentially important feature of U.S. home loans, particularly with rising rates. Assumability is normally relegated to the basement of refinancing, securitization and prepayments, it affects borrower decision-making, mobility, prices and housing market liquidity. This survey integrates theoretical, empirical and simulation analyses to consider the operation of assumable mortgages in the context of rising rates. We examine borrower incentives at the margin based on interest-rate spreads, market constraints due to institutional and administrative complexities, and market-wide effects on housing supply and prices. The evidence shows that transferability can potentially alleviate mortgage interest rate lock-in by facilitating transactions otherwise held back, but that liquidity and information frictions restrict the use of transferability. The review also underscores the pricing of in-situ low-rate mortgages into housing prices and macro-financial effects of transferability in a mostly fixed-rate mortgage market. This article synthesises insights from the theory of mortgage contracts, search-and-matching models, and the empirical literature on housing markets and suggests that assumable mortgages are an overlooked but potentially relevant form of housing finance.