Many commercial loans written in 2019 to 2021 carry rates in the 3.5% to 4.75% range, and a lot of them can be assumed by a buyer with lender approval. Taking over that debt instead of getting a new loan at 6.5% or more can save tens of thousands of dollars a year. The trade-offs are more equity, a slower closing, and fees.
Which Loans Are Assumable?
| Loan type | Assumable? | What to expect |
|---|---|---|
| CMBS (conduit) | Usually yes, with servicer approval | 1% fee, rating agency and servicer review, 60 to 120 days, strict prepayment rules (defeasance or yield maintenance) make assumption the main exit |
| Life insurance company | Often, case by case | Borrower quality matters; fee typically 0.5% to 1% |
| Agency (Fannie/Freddie, multifamily) | Yes, by design | Formal process, 1% fee common, 60 to 90 days |
| Bank / credit union | Rarely | Most have due-on-sale clauses; some local banks will approve a strong buyer |
| SBA 504 / 7(a) | Sometimes | Buyer must also qualify as an owner-occupant business |
Worked Example: Assume or Refinance?
A $5.00M property has an existing loan with a $3.00M balance at 4.25% and 5 years left before maturity. The alternative is a new 65% LTV loan of $3.25M at 6.75%. Both amortize over 25 years.
The catch: the assumable loan leaves a $2.00M equity gap versus $1.75M with a new loan, so the buyer needs about $250K more cash, plus a roughly $30K assumption fee and lender legal costs. That extra equity is effectively earning the interest savings, which works out to a strong return on those dollars when rates are this far apart.
Filling the Equity Gap
- Seller financing: A second-position note from the seller, if the senior lender permits subordinate debt (many CMBS loans do not).
- Mezzanine or preferred equity: More expensive, but can be blended with cheap senior debt.
- Price adjustment: In practice, sellers with below-market assumable debt often ask a premium price because the loan is part of the value. Run the blended cost of capital to see if the premium is justified.
Risks to Underwrite
- Reserve and escrow balances transfer with the loan; negotiate who gets credit for them at closing.
- Existing cash management or lockbox provisions may already be triggered.
- Guarantor requirements: you will replace the seller as carve-out guarantor, which requires net worth and liquidity tests.
- Loan covenants written for the seller's business plan may restrict your leasing or renovation plans.
Frequently Asked Questions
Does the assumption fee apply to the full loan?
Typically it is a percentage of the outstanding balance, commonly 1%, plus the lender's and servicer's legal and processing costs, which can add $10K to $30K+ on CMBS.
Can I negotiate loan terms during an assumption?
Usually only lightly. The rate and maturity stay the same. Some lenders will adjust reserves or release a guarantor, but do not count on it.
How do I find properties with assumable debt?
Ask brokers directly, check offering memorandums for a debt section, and look at CMBS loan data for properties with loans maturing in 3 to 7 years.
Bottom Line
In a higher-rate market, a below-market assumable loan can be the most valuable feature of a deal. Compare total cost of capital, not just the rate, account for the extra equity and fees, and make sure the remaining term is long enough for the savings to matter.
Educational content only, not legal, tax, or investment advice. Figures in examples are illustrative. Confirm specifics with your attorney, CPA, and lender before acting.