Mortgage rates jumped dramatically from their historic lows in 2021–2022 to much higher levels by 2023. In mid-2021, 30-year mortgage rates averaged around 2.9%, but by late 2022 they skyrocketed to over 7% moaa.org. Experts projected rates would hover between 6% and 8% through 2023 moaa.org – and indeed, as of 2025, mortgage interest rates remain elevated near multiyear highs. This climate has made home loans more expensive for everyone, from first-time homebuyers to seasoned real estate investors.
So how can you get the best interest rate on a home purchase or refinance in 2025’s high-rate market? The key is to be proactive and strategic with your financing. This means exploring options beyond the standard loan quote from a bank. Below, we’ll break down four powerful strategies to lower your mortgage interest rate or otherwise reduce your financing costs:
Buy Mortgage Points to “buy down” your rate with an upfront payment.
Use creative financing like seller financing (owner carry-back loans) – including tips to negotiate low or even zero percent interest deals by positioning yourself as a low-risk buyer.
Assume an existing low-rate mortgage through a qualified loan assumption (for example, taking over a seller’s VA or FHA loan at a fraction of today’s rates).
Employ “Subject To” financing – taking title to a property while leaving the seller’s mortgage in place – and understand the risks involved (such as due-on-sale clauses and potential seller bankruptcy).
Each approach has its own benefits, risks, and best-use scenarios. Whether you’re a first-time buyer seeking an affordable payment, an investor looking to maximize cash flow, or a homeowner aiming to refinance or move without paying today’s high rates, these strategies can help. Let’s dive into each in detail.
One straightforward way to get a lower rate on your mortgage is by buying mortgage points (also known as discount points). This means paying an upfront fee at closing to “buy down” your interest rate. Each point typically costs 1% of your loan amount and usually reduces the interest rate by about 0.25% cnbankpa.com (though the exact effect can vary by lender).
For example, if you’re borrowing $300,000 at a 7.0% rate, paying for 1 point (approximately $3,000) might reduce the rate to ~6.75%. This lower rate will shrink your monthly payment and save you money on interest over the life of the loan cnbankpa.com. Essentially, you’re pre-paying some interest upfront in exchange for a cheaper rate each month – think of it like a “VIP pass to a lower monthly payment,” as one expert put it cnbankpa.com.
However, buying points only pays off if you keep the loan long enough for the monthly savings to exceed the upfront cost. The time it takes for your accumulated monthly savings to breakeven with what you paid for points is called the breakeven period cnbankpa.com. In many cases this might be around 4-6 years, depending on the rate reduction and loan size. For instance, an analysis by C&N Bank showed that paying 2 points on a 30-year loan yielded a breakeven around 4 years in exchange for substantial lifetime interest savings cnbankpa.com.
Example: Buying discount points can significantly lower your interest rate and monthly payment. The table above illustrates a $250,000 loan at a 7.125% rate with 0, 1, 2, or 3 points purchased. Each point (1% of the loan) typically reduces the rate by ~0.25%, which lowers the monthly payment (e.g. from $1,684 at 7.125% to $1,580 at 6.50% with 2 points). In this scenario, 2 points cost $5,000 upfront but save over $100 per month, achieving breakeven in about 4 years and yielding over $32k in total interest saved over 30 years. If the borrower keeps the loan beyond the 4-year mark, the rate buydown proves financially beneficial. cnbankpa.com
Key considerations when buying mortgage points:
Calculate the Breakeven: Before paying for points, calculate your breakeven period. If it takes, say, 5 years to recoup the cost and you plan to own the home (and keep the loan) well beyond that, buying points can make sense. But if you might sell or refinance sooner, points could end up costing more than you save cnbankpa.com.
Impact of Future Rate Drops: Many economists expect interest rates could fall in coming years cnbankpa.com. If you pay points to get a slightly lower rate now and then rates drop significantly, you might refinance – and if you refinance before hitting your breakeven time, the money you spent on points essentially gets wasted. Consider this when deciding on points. In 2023, many homebuyers purchased points to reduce payments, only to find it “wasn’t a guaranteed win for everyone” once future rate changes were factored in cnbankpa.com.
Out-of-Pocket Cost: Buying points increases your upfront closing costs. Ensure you have the cash budget not just for the down payment and usual closing fees, but also for any points you choose to pay. You may be able to negotiate with the seller to pay points on your behalf (seller concessions) in some cases, which can be a savvy way to reduce your rate with less out-of-pocket expense – though in a hot market, sellers may be less willing.
Tax Deductibility: Mortgage discount points are often tax-deductible as prepaid interest. If it’s your primary home purchase, the IRS typically lets you deduct the points in the year paid (check current tax rules or consult a tax advisor). This tax perk can effectively reduce the cost of buying down the rate, softening the blow of that upfront payment.
Refinancers Benefit Too: If you’re refinancing an existing mortgage in 2025, you can also pay points to lower the new loan’s rate. The same breakeven logic applies. One difference: points on a refinance are usually deducted over the life of the loan for tax purposes, not all at once, but the interest savings still accrue. If you’re stuck refinancing in a high-rate climate (perhaps due to a divorce buyout, needing cash out, or an adjustable-rate reset), consider investing in points to get the lowest rate possible on the refi.
Bottom line: Buying mortgage points is a straightforward strategy to get a lower interest rate from your lender. It’s best for those who plan to hold the mortgage long-term so they can fully realize the savings. In a high-rate environment, paying a bit more cash up front can secure tens of thousands of dollars in interest savings over time – but run the numbers for your situation. If you expect to refinance or move in a couple of years, you may be better off not paying points and instead refinancing when rates drop cnbankpa.com.
When bank rates are sky-high, why not become your own bank? Seller financing – also called owner financing or an owner carry-back – is a creative financing option where the seller of the home extends credit to the buyer, rather than the buyer getting a loan from a traditional lender investopedia.com investop
With seller financing, the buyer and seller negotiate all the terms of the loan: the interest rate, down payment, length of the loan, and any repayment schedule or balloon payment investopedia.com. The buyer signs a promissory note with the seller and often a mortgage or deed of trust is recorded to secure the debt against the property investopedia.com (protecting the seller’s interests). This arrangement can be a win-win in the right situation:
For buyers, seller financing can offer flexibility and below-market interest rates if negotiated well, and it may be available even if the buyer has trouble qualifying for a bank loan investopedia.com. It’s a way to avoid many traditional mortgage costs or strict requirements. In 2025’s environment, a motivated seller might agree to an interest rate notably lower than what banks would offer, especially if it helps them sell the home at a good price or quickly.
For sellers, offering financing can attract more buyers in a high-rate market and even allow the seller to get their asking price (or more) by offering an attractive payment plan. The seller may also earn interest income over time. However, it does mean the seller is taking on the risk of the buyer’s ability to pay, so typically this is done when a seller owns the home free and clear or can afford to act as lender. Engaging attorneys and drafting proper contracts is critical to protect both parties investopedia.com.
How to negotiate a great seller-financing deal: Successful creative financing deals require some savvy negotiation and a focus on building trust. Here are tips to potentially secure a low or even 0% interest rate through owner financing:
Find the Seller’s Motivation (“Pain Point”): Understand why the seller might offer financing. Are they looking for a steady income stream instead of a lump sum? Do they want to defer capital gains tax by receiving installments? Or are they simply unable to find a buyer due to high rates scaring off buyers? Tailor your offer to solve their problem. For example, if a seller needs monthly income, emphasize your reliable payments; if they are stuck on a high price, offer their full asking price in return for your desired terms (like a lower rate or no interest for an initial period) reddit.com.
Offer a Win-Win Rate/Price Combo: Generally, you can trade price for rate. One common tactic is phrased as “your price, my terms.” This means you agree to the seller’s desired sale price if they agree to an interest rate and loan terms favorable to you. For instance, you might say: “I’ll pay you $300,000 for the home (full price) if you carry the loan for 5 years at 1% interest.” Alternatively, “my price, your terms” means you propose a lower purchase price if the seller wants a higher interest rate or shorter term. Be flexible and creative – sometimes getting a rock-bottom interest rate will save you far more in the long run than a small discount on price would cost.
Consider 0% Interest (with a Twist): Believe it or not, some seller-financed deals have 0% interest – essentially an interest-free loan from the seller. How? Typically by agreeing on a higher sale price or larger payments. For example, one investor found that offering 10% down and then payments of $900–$1,000 per month on a roughly $250k house satisfied the seller, effectively working out to a low/zero interest deal in the numbers reddit.com. The seller gets their price and a comfortable payment, and the buyer saves massively by paying no interest. Note: Pure 0% interest arrangements may have tax implications (the IRS can impute interest on interest-free installment sales), so some sellers might prefer to charge at least a minimal interest. Still, negotiating for a very low rate – like 1% or 2% – can be achievable if you give the seller something else they value (such as a higher sale price or a large down payment).
Put Down a Significant Down Payment: The larger your down payment, the more secure the seller will feel. A common rule of thumb is at least ~10% down for seller-financed deals to show commitment reddit.com, but more is always better when trying to persuade a cautious owner. A healthy down payment gives the seller immediate cash and equity cushion, making them more comfortable offering a low interest rate or longer term. It also demonstrates to the seller that you’re serious and financially stable, reducing their risk.
Demonstrate You’re a “Solid Citizen”: Remember, the seller’s biggest fear is that you won’t pay as agreed or that you’ll trash the house. Alleviate these concerns to get better terms. Provide proof of your income, credit, or references if needed – even if you couldn’t qualify for a traditional mortgage, you can show you have a history of paying rent or other bills on time. If you’ve been a long-term tenant of the property or have a personal connection, highlight that trust. Sellers are far more willing to do low-interest financing for someone they view as responsible and low-risk reddit.com.
Shorter Term or Balloon Payments: Most seller financers don’t want to carry a loan for 30 years. They might agree to a low rate if the term is shorter (say 5-10 years) or if you agree to a balloon payment – meaning the balance is due in full after a few years. From your perspective, that’s okay if you plan to refinance or pay off by then (hopefully once market rates drop). You get the low rate now, and deal with refinancing later. Just be realistic: if a large balloon comes due, you’ll need a plan to pay it (refinance, sell, or savings).
Use Professional Contracts: Always have a real estate attorney draft or review the seller financing agreement. It should spell out all terms: interest rate, payment schedule, what happens if you pay late or default, who holds title (usually you get the deed, and the seller gets a lien as lender), and how insurance and taxes will be handled (often the buyer pays them, just like with a normal mortgage). Proper documentation protects both sides investopedia.com and can include clauses beneficial to you, such as no prepayment penalty (so you can refinance early if possible).
Seller financing can be a fantastic way to circumvent high mortgage rates and create a custom loan that works for both buyer and seller. Real-world examples show everything from fair-market rates to shockingly good deals like 2% or 0% interest owner-financed sales. Of course, these deals aren’t common – you have to find the right seller and present a compelling offer. It helps to look for situations like long-time landlords looking to retire (they might prefer steady income over a lump sum, and have experience with the property) or properties that didn’t sell quickly. Networking with local real estate investors or using listing keywords like “seller will carry” can lead you to opportunities.
Takeaway: Creative financing through seller financing lets you negotiate your own interest rate. In 2025, if you can’t stomach a 7% bank loan, see if a seller is willing to work with you directly. By building trust and structuring a win-win deal, you might snag a mortgage rate far below the market – or even no interest at all. Just be sure to get everything in writing and keep the relationship professional. Done right, seller financing can open the door to homeownership or investment on your terms.
Another powerful strategy in a high-rate market is to assume the seller’s existing mortgage if possible. In a loan assumption, you take over the current homeowner’s mortgage – keeping their original loan terms, including that precious low interest rate lendingtree.com. This can be a goldmine if the seller’s loan was originated when rates were much lower than today. Instead of getting a brand-new loan at, say, 6.5-7%, you step into the seller’s old loan which might be at 3% or 4%. All you have to do is qualify with the seller’s lender and complete the assumption process, and you’ll literally **“assume” responsibility for their loan moaa.org.
What types of loans are assumable? Most government-backed mortgages are assumable with lender approval. This includes VA (Veterans Affairs) loans, FHA (Federal Housing Administration) loans, and USDA loans lendingtree.com. Notably, VA loans made after 1988 are freely assumable by new buyers (even non-veterans) as long as the lender or VA approves the creditworthiness of the buyer moaa.org. FHA loans also allow assumption under similar guidelines – in fact, “if the buyer is creditworthy, the lender must approve a sale by assumption” for FHA loans originated after Dec 15, 1989 lendingtree.com. On the other hand, most conventional loans (those backed by Fannie Mae or Freddie Mac) are not assumable; they typically have “due-on-sale” clauses that require the loan to be paid off when the home is sold lendingtree.com. So, the best bet is to look for homes being sold where the seller has an FHA/VA loan (or USDA) with a low rate.
Why would a seller agree to a loan assumption? In 2025, many homeowners who bought or refinanced in 2020-2021 are sitting on ultra-low interest rates (sometimes <3%). These loans are valuable! A seller can use an assumable loan as a selling point to attract buyers – it’s actually a form of seller concession. Some sellers can even command a higher sale price because the buyer will still save money overall by taking the low-rate loan. According to experts, sellers offering assumption “may have a leg up” on other sellers and in some cases can sell for more, because the lower interest rate offsets a higher price lendingtree.com. From the seller’s perspective, as long as they get their equity out (more on that next), they might not mind if you assume their loan – especially if it helps the home sell faster in a soft market.
How a loan assumption works: Suppose a seller’s outstanding mortgage balance is $200,000 at 3% interest, and they’re selling the house for $300,000. If you assume their loan, you’ll take over the $200k loan at 3% – an incredible deal in a 7% market. But you still owe the seller the difference between the sale price and the loan balance, i.e., their equity. In this example, that’s $100,000. So you must come up with $100k as a down payment to the seller (or via another loan) to “cover the equity” lendingtree.com. Essentially, the assumed mortgage covers part of the price, and you must finance or pay the rest.
If you don’t have that much cash, you might combine an assumption with a secondary loan. For instance, you could take out a home equity loan or a second mortgage to finance the gap between the assumable loan balance and the purchase price lendingtree.com. This second loan will have a higher rate than the assumable loan (since it’s new and smaller), but since the amount is much lower, your overall blended rate can still be attractive. You could also ask the seller if they’d be willing to carry a second mortgage for that difference (that effectively merges this strategy with seller financing). Some new services even pair buyers with lenders or marketplaces to facilitate covering that gap, given the growing popularity of assumptions lendingtree.com.
To assume a loan formally (also known as a novation in legal terms lendingtree.com), you will need to go through the lender’s application process. You must qualify for the loan similar to how you’d qualify for any mortgage – you’ll submit income, credit, and other info to show you can take over payments moaa.org. The lender (and/or the government guarantor, like VA/FHA) needs to approve the transfer. The good news: there’s usually no need for a new appraisal or large origination fees like a normal loan moaa.org – you’re taking over an existing loan, not initiating a new huge debt, so the process can be cheaper and quicker once approved. You might pay an assumption fee (often a few hundred dollars or a small percentage of the loan) and some admin costs, but it’s often far less than typical closing costs on a new mortgage.
One huge advantage: You’re inheriting not only the low interest rate, but also potentially a shorter remaining term (if the seller has paid the loan for several years already) and lower balance. That means you could pay off the house sooner than 30 years if you keep the original schedule. And of course, the interest savings are substantial. Consider that at the end of 2023, over half of U.S. homeowners had mortgage rates under 4% – some even as low as 2% lendingtree.com. Assuming one of these sub-4% loans instead of taking a new 7% loan could save you tens of thousands of dollars over the life of the mortgage lendingtree.com. It’s not hard to see why loan assumptions have become a hot topic in 2025 among savvy buyers.
Important notes and cautions on assumptions:
VA Loan Specifics: VA loans are a special case. Any buyer (veteran or not) can assume a VA loan with lender approval moaa.org. However, if the buyer is not an eligible veteran, the seller’s VA entitlement (the benefit amount) might remain tied up in that loan until it’s paid off. Veterans who sell might prefer another veteran assume the loan so that the VA entitlement can be restored to the buyer and the seller is released. Regardless, from the buyer’s perspective, a VA loan at 2.5-3.5% is a prize worth pursuing! Just be aware the VA funding fee may apply on assumptions (often 0.5% for assumptions). Always check the latest VA rules.
FHA/USDA: These loans typically require the new buyer to occupy the home as a primary residence (especially FHA) and to meet credit guidelines. There may be some paperwork and possibly mortgage insurance adjustments (FHA loans have mortgage insurance premiums which might continue for you). But the assumption process is usually straightforward if you qualify. It’s wise to contact the servicer of the seller’s loan early on to get their specific assumption procedures.
Equity Challenges: As mentioned, the more equity the seller has, the more cash you need to assume. In markets where home prices have risen a lot, assumptions can be tough for first-time buyers without large savings. In some cases, though, you might negotiate something creative – maybe the seller is willing to carry a second mortgage for that equity (again blending seller financing). Or you might have a family member provide a loan. Think outside the box if the rate savings are worth it.
No Lender Approval = Risky “Informal” Assumptions: You might hear about “simple assumption” or even people informally taking over payments without telling the bank. This is essentially the “subject to” strategy we’ll discuss next – not a proper assumption, but rather a loophole approach. Doing an official, qualified assumption (novation) is the safe route: the lender approves it and releases the seller from liability lendingtree.com. Always aim for a formal assumption if possible so that everyone’s protected and the loan won’t be called due unexpectedly.
Finding Assumable Loans: Not every listing will advertise an assumable loan. But you can ask! If a home for sale was bought or refi’d a few years ago with VA/FHA, it’s worth asking the seller’s agent if assumption is an option. There are also websites popping up that list homes with assumable mortgages (for example, some sites highlight listings boasting rates “as low as 2%” that buyers can assume lendingtree.com). These can be great resources to find opportunities. Real estate agents in your area might also know of sellers willing to consider an assumption.
In summary, assuming a loan is one of the best ways to inherit a low interest rate in 2025. It’s particularly attractive to first-time homebuyers who can occupy the home and might otherwise be priced out by high rates – taking over an FHA or VA loan can make the difference in affordability. It’s also a great tool for move-up buyers or even investors (note: FHA/VA assumptions typically require the buyer to live in the home initially, so investors might be limited to assuming certain USDA loans or doing subject-to deals instead). If you have the financial means to handle the seller’s equity (or can find a second loan to cover it), don’t overlook loan assumptions. You could literally be signing up for a 2020-era mortgage rate in 2025’s market. That’s a huge win for your financial future lendingtree.com.
The last strategy is more advanced and comes with significant risks, but it’s used by many real estate investors and can be a lifeline to a low rate when other options aren’t available. “Subject to” financing means buying a property “subject to” the existing mortgage. In plain language, the seller’s mortgage stays in place (in the seller’s name), but the buyer takes ownership of the house and agrees to pay the seller’s mortgage payments. Unlike a formal assumption, the buyer does not officially assume the loan or get the lender’s permission visiolending.com. The bank is often not even notified that the property changed hands. The buyer just starts paying the loan on behalf of the seller (usually through some agreed arrangement).
Effectively, subject-to is a way to take control of a property with the benefit of the seller’s low interest rate loan, but without going through the lender. It’s similar to the “simple assumption” mentioned earlier lendingtree.com, except usually with a subject-to deal, there is a formal purchase of the property (the deed transfers to the buyer) while the loan stays in the seller’s name. This arrangement is typically spelled out in a contract between buyer and seller, and often the buyer will pay the seller some upfront amount (which might be the seller’s equity or a fee) and then take over the mortgage payments. It can be a faster, less expensive transaction than getting a new loan, since you bypass the traditional mortgage process visiolending.com (no new loan origination, potentially no appraisal or lender fees).
Why do subject-to deals? Mainly to get a better interest rate or terms than you could otherwise, and sometimes to help a distressed seller. If a seller is in financial trouble (can’t afford their mortgage, facing foreclosure, or just desperate to move), a buyer might offer to take over the loan payments. The seller avoids foreclosure and walks away (maybe with a small payout), and the buyer gains ownership and the benefit of that existing loan (often at a lower rate than available currently) visiolending.com. It’s also useful if the buyer cannot qualify for a normal mortgage – since you’re not formally assuming, no credit check or income verification by the bank is required visiolending.com. For investors with multiple mortgages who might not get approved for yet another loan, a subject-to allows acquiring another property without lender scrutiny visiolending.com.
However, subject-to financing carries major risks and legal/ethical considerations:
Due-on-Sale Clause: Almost every modern mortgage has a due-on-sale clause, which says if the property is sold or transferred without the lender’s consent, the lender can demand the entire remaining loan balance immediately (essentially forcing a refinance or payoff) visiolending.com. In a subject-to deal, you are transferring the property to the buyer, which technically violates this clause. Now, the reality is that lenders may not notice right away as long as payments keep being made – especially if the transfer isn’t obvious (some investors keep the insurance in the seller’s name or use a land trust to hide the sale). But if the bank discovers the sale, they have the right to foreclose unless the loan is paid off gimerlaw.com. One common way the bank might find out is if the seller files bankruptcy (more on this below), or if the insurance policy changes to the new owner’s name, or if payments stop. This risk is always looming in a subject-to.
Seller’s Credit at Stake: With the loan in the seller’s name, it’s the seller’s credit on the line. If the buyer fails to pay on time, it will reflect on the seller’s credit report (late payments, default, etc.) visiolending.com. The seller is trusting the buyer to uphold their end of the bargain. From the buyer’s side, you need to recognize the gravity of that responsibility – someone else’s credit (and financial well-being) is tied to your actions. Often extensive negotiation and trust-building is needed to reassure a wary seller that you will pay reliably visiolending.com. Sometimes third-party loan servicing companies are used: the buyer pays the servicer, which then pays the lender and provides records, giving the seller peace of mind that the loan is being paid.
Risk of Seller Defaulting on Other Obligations: Imagine you’re paying the mortgage directly to the seller every month (in some setups) and trusting them to send it to the bank. If the seller is financially distressed or unscrupulous, they might pocket your money and not pay the loan – leading to foreclosure. To avoid this, buyers typically insist on paying the lender directly or through an escrow service, not the seller. That way you know the loan is current.
Seller Bankruptcy Scenario: What if the seller, after closing the subject-to deal, declares bankruptcy? You might think “well, the house is already sold to me, so it’s not in the bankruptcy estate.” True, the property is now yours. But the seller’s mortgage is still their debt – and in bankruptcy, the seller must list that mortgage and the lender will be notified. The lender will see that the home was sold without their consent (since the deed is no longer in the seller’s name). This almost guarantees the lender will invoke the due-on-sale clause and demand immediate payoff gimerlaw.com. If you (the buyer) cannot quickly refinance or pay off that loan, the lender can foreclose on the house even though it’s your property now gimerlaw.com. In other words, you could lose the house if the seller goes bankrupt, as the loan will likely be called due and payable in full, which for most is impossible to cover on short notice visiolending.com visiolen
Other Legal Complications: The seller remains liable to the lender. If things go wrong, it could lead to lawsuits. Also, if the buyer later sells the property, the chain of title could get messy if the mortgage isn’t handled. There are also ethical questions – some view subject-to deals as “gaming the system” or potentially predatory toward desperate sellers. It’s essential that the seller fully understands what they’re agreeing to (get everything in writing, with legal counsel ideally).
Given these risks, why do people still do subject-to? Because when it works, it can be a win-win and very profitable. The process is fast – just a deed and some paperwork between buyer and seller, no waiting on bank underwriting visiolending.com vi
Mitigating the risks: If you consider a subject-to deal, have an exit strategy. You should be prepared to refinance or pay off the loan if the lender calls it due (perhaps once you’ve built equity or if rates drop). Keep some reserves in case you need to satisfy the loan on short notice. Some investors even set aside funds or credit lines to handle a potential loan call due to a due-on-sale enforcement. Also, maintain good communication with the seller if possible – you don’t want surprises like a bankruptcy. Sometimes, subject-to deals are combined with a form of seller financing called a wrap-around mortgage, where the seller gives the buyer a new note that “wraps” the existing loan. In that case, the seller might make a small interest spread, but it still doesn’t remove the due-on-sale issue (it just formalizes the arrangement). In any case, get professional legal help to structure the contract. There are ways to add protections: for example, placing the property in a trust before transfer (some claim this avoids triggering due-on-sale), or having an agreement that if the loan is called due the buyer will attempt to refinance, etc.
Who is subject-to good for? Typically, real estate investors who are comfortable with risk and have contingency plans. It’s also sometimes the only option for a buyer with poor credit to take over a home (since no new loan is required). First-time homebuyers generally should be cautious with subject-to; a mistake or unforeseen event could result in losing the home. However, learning about it can give you an edge in certain situations – perhaps a family member could transfer you a house with an old loan, etc., which is a scenario where the trust level is high (family) and risk of due-on-sale enforcement might be lower if payments are steady.
Recap – the pros and cons of “Subject To”:
Pro: Allows you to acquire a home with an existing favorable mortgage (low rate, no new loan needed visiolending.com). You save on lender fees and possibly get a rate you’d never qualify for otherwise.
Pro: Fast closing – no waiting on bank approval (especially helpful if time is of the essence for the seller) visiolending.com.
Pro: Good solution for a seller in distress who just needs out; you can solve their problem by taking over, often with little or no money down besides catching up any arrears.
Con: Violation of loan terms – triggers due-on-sale clause, meaning the bank can call the loan due at any time visiolending.com. If you can’t pay it off or refinance then, you could face foreclosure.
Con: Seller remains on the hook – if you default, you wreck the seller’s credit and they could even face the lender pursuing them for the debt. Morally, you carry a big responsibility.
Con: Unpredictable situations (seller bankruptcy, death, etc.) can derail the arrangement and lead to legal complications gimerlaw.com visio
Con: Not typically a long-term solution – ideally you’ll want to refinance into your own loan at some point (unless you plan to keep the loan until it’s paid off, which might be hard if the bank finds out).
In summary, “subject to” financing is a creative financing tool that can secure you a great interest rate loan in a high-rate market, but use it with extreme caution. It’s most appropriate for experienced buyers/investors who understand the risks and have fallbacks. Always consult legal professionals when structuring a subject-to deal, and consider the worst-case scenarios. If done ethically and carefully, a subject-to purchase can be a win for both parties (buyer gets the house with a cheap loan, seller avoids default). Just know that of all the strategies discussed, this one carries the most “buyer beware” warning.
The high interest rates of 2025 don’t have to put your homeownership or investment dreams on hold. While the market’s baseline mortgage rates may be challenging, we’ve seen that there are several home financing strategies you can deploy to secure a better rate or more affordable financing:
If you have some cash on hand and plan to stay put, buying mortgage points lets you invest in a lower rate today, shaving down your monthly payments and total interest bill cnbankpa.com.
If you find a willing seller, negotiating seller financing can unlock a custom loan deal – possibly with a below-market or even zero percent interest rate – that no bank could match, all while helping the seller achieve their goals.
If you’re eyeing a house with an existing low-rate loan, assuming the seller’s mortgage can effectively time-travel you back to the low-rate era of a few years ago, saving you tens of thousands over the life of the loan lendingtree.com moaa.org.
And for the bold and careful, “subject to” deals offer a back door to take over a great loan without formal assumption, albeit with significant risks that must be managed visiolending.com visiole
Each of these tactics can be game-changing in the right circumstances. It’s crucial to evaluate which strategy (or combination of strategies) fits your situation. A first-time homebuyer with limited funds might focus on finding an assumable FHA loan or negotiating some seller-paid points, whereas an investor might leverage seller financing or subject-to to keep acquiring properties without paying 7%+ interest on each new loan. Those looking to refinance should crunch the numbers on points or possibly wait for rate drops, unless an assumption or creative private loan is an option.
Stay informed and get advice: The mortgage landscape is complex, and what works best can vary. Talk to mortgage professionals about points and rate buydowns. Consult real estate agents or attorneys when exploring assumptions and seller financing – they can often point you to opportunities or help navigate the process. And definitely involve a knowledgeable real estate attorney if you venture into subject-to arrangements or seller-financed contracts to ensure everything is legal and properly documented.
By being proactive and thinking outside the conventional loan box, you can beat the high-rate environment. The strategies above are not commonly advertised by banks (after all, banks prefer you take their standard loans!), but they are legitimate and proven methods to get the best interest rate or terms possible. In some cases, you might combine strategies – for example, assume a low-rate loan and pay a point to lower it further, or negotiate seller financing that includes the seller buying down the rate on a first mortgage.
Remember that your overall goal is the lowest cost of financing over time, not just the lowest headline rate. Consider the trade-offs of each approach: upfront cost vs. long-term savings, risk vs. reward, flexibility vs. security. By understanding and utilizing these options, homebuyers, investors, and refinancing homeowners in 2025 can save money and find opportunity even in a challenging rate climate.
Empowered with this knowledge, you can approach the market with confidence and creativity. High rates may be a hurdle, but with the right strategy, you can leap over it and land your dream home or investment – without breaking the bank on interest.