A commercial loan assumption is the transfer of an existing mortgage, with its rate, balance, maturity, prepayment terms and covenants, from the selling borrower to a buyer who takes over the obligation with the lender’s consent, in exchange for an assumption fee (1% of the balance under Fannie Mae’s standard terms) plus review and legal costs. When the coupon is below market, the loan is an asset of the sale. Sellers who treat the assumption as a consent process, and not as something to price, give that value to the buyer.
How an assumption works
Commercial mortgages generally carry a due-on-sale clause: a transfer of the property without consent lets the lender accelerate the loan. An assumption is the consented exception. The buyer’s entity becomes the borrower, a new key principal and guarantor replace the seller’s, and every provision of the loan carries over, including reserves, cash management triggers and the prepayment schedule.
Fannie Mae’s Transfer/Assumption form (Form 4636.T/A) defines the category broadly. It covers a sale of the property with an assumption of the loan, a conversion of the borrower into a different type of entity that changes its assets, liabilities, rights or obligations, and transfers of direct or indirect ownership interests in the borrower. A recapitalization that changes control can need the same process as a sale. The thresholds for interest transfers are covered in lender consent requirements.
Fannie Mae’s fixed-rate term sheet states that its loans are typically assumable, subject to review and approval of the new borrower’s financial capacity and experience. Other loans are assumable only on the terms their loan agreement sets, if at all, so read the transfer clause before marketing the property.
What the lender reviews
The agency guides spell out the review, and they are a fair template for what any lender will ask.
Fannie Mae. The servicer must confirm that the loan’s credit quality, the property’s asset quality and the obligations of the borrower, key principal and guarantor are maintained, with any guarantees assumed by a new person acceptable to the lender. For an assumption, which the form classes as critical, the servicer assesses the transferee’s experience, credit history and financial condition, reviews property management, inspects the property, decides whether the replacement reserve should be funded or increased, and calculates a current DSCR. If the property falls short of Fannie Mae’s Tier 2 DSCR, the servicer must evaluate the buyer’s plan to improve it and is encouraged to seek escrows, guarantees or other credit support.
Freddie Mac. Chapter 41 of the Seller/Servicer Guide requires the servicer to send its recommendation at least 15 days before the proposed transfer date, with the sale contract, financial statements, a real estate schedule and a certificate for the buyer and each new key principal, evidence of management experience, an organizational chart and a trailing 12-month operating statement. A property condition report is required where, among other triggers, the property was built more than 15 years earlier or its last annual inspection noted significant deferred maintenance.
CMBS. The master or special servicer decides under the servicing standard, and larger loans need more. In GS Mortgage Securities Trust 2020-GSA2, consent to a transfer of any loan above $35 million, or of one of the ten largest loans with a balance of at least $10 million, among other size tests, requires a rating agency confirmation, and while the controlling class retains control, a transfer that is a major decision also needs the directing holder’s consent. See tracking CMBS loans as a borrower.
Assumption fees and costs
| Lender | Transfer fee | Other costs |
|---|---|---|
| Fannie Mae | 1% of the unpaid principal balance, shared equally by servicer and Fannie Mae unless the documents provide otherwise | $3,000 servicer review fee (adjustable by the servicer) and, where Fannie Mae’s outside counsel is engaged, its legal fees |
| Freddie Mac | 1% of the unpaid principal balance for loans on loan agreements dated before July 1, 2014; as the loan documents specify for later forms | Review or processing fee and Freddie Mac counsel fee |
| CMBS | As the loan agreement specifies | Assumption application and review fees, which the 2020-GSA2 servicers retain as additional compensation |
Fannie Mae’s servicer may waive the transfer fee without Fannie Mae’s approval only in one case: a transfer that completes a Section 1031 exchange for which the same parties already paid a fee. Freddie Mac may consider reducing or waiving the fee for interest transfers that do not change control or add new principals. For every other assumption, budget the fee. See managing agency loans.
A worked example: pricing a below-market loan
A property is under contract at $40,000,000. It carries a $20,000,000 interest-only agency loan at 3.75% with five years remaining. The buyer’s alternative is a new five-year interest-only loan at 6.25% and 65% of price.
Illustrative example: assume the loan or finance new
| Assume the existing loan | New loan | |
|---|---|---|
| Loan amount | $20,000,000 | $26,000,000 |
| Rate | 3.75% | 6.25% |
| Annual interest | $750,000 | $1,625,000 |
| Buyer equity at a $40,000,000 price | $20,000,000 | $14,000,000 |
| Up-front financing cost | $200,000 transfer fee (1%) plus $75,000 review, legal and reports | $260,000 origination fee (1%) plus $120,000 reports and legal |
The value of the rate. On the $20,000,000 the buyer takes over, the loan saves 2.50% a year, or $41,666.67 a month for 60 months. Discounted at the 6.25% market rate (a 60-month annuity factor of 51.41583), that is $2,142,326, or 10.7% of the balance. Net of the $275,000 of assumption costs, and before crediting the new-loan fees it avoids, the loan is worth $1,867,326 to a buyer who would otherwise borrow at market.
The cost of the rate. The buyer puts in $6,000,000 more equity, because the assumed loan is 50% of price instead of 65%. Whether that trade works depends on the buyer’s cost of equity, or on a supplemental loan or mezzanine piece the documents allow. See supplemental loans.
The seller’s side. Paying off instead would cost the seller the loan’s prepayment charge on the closing date. Assuming Treasury yields sit above the 3.75% coupon, yield maintenance with a 1% floor charges the floor, $200,000. The assumption saves that, and the $1,867,326 is the range the seller and buyer negotiate within on price. See commercial prepayment penalty types.
The assumption is worth the most when the gap between the coupon and market rates is widest and the remaining term is longest. As maturity approaches, the value shrinks until the fees outweigh it.
What to track across a portfolio
- Which loans are assumable, on what consent standard, with what fee, from the executed documents and amendments.
- The value of each assumable loan’s rate against today’s market, refreshed as rates move, for every asset on a sale list.
- The prepayment cost of paying off each loan on the planned closing date, for the comparison. See real-time prepayment calculations.
- Guarantor and key principal obligations, and whether the seller’s guarantor is released for events after the transfer. See recourse and guaranty burndown.
- Reserve balances that transfer with the loan, which belong in the purchase price.
- Submission lead times and closing dates as critical dates. See loan critical date tracking.
How this looks in LoanBoss
Lender approval requirements, recourse and guaranty provisions and every prepayment convention are abstracted with each loan and available at one click, so the assumption terms of a loan on a sale list are read from the documents and not from memory. The prepayment cost of the payoff alternative is calculated for any closing date. Recourse is tracked with its burndown, escrows and reserves are tracked, and critical dates carry alerts.
Frequently Asked Questions
Are commercial real estate loans assumable?
Many permanent loans are, with lender consent. Fannie Mae states its fixed-rate loans are typically assumable subject to review of the new borrower’s financial capacity and experience; CMBS, bank and other loans follow the transfer clause in the loan agreement.
What is a typical assumption fee on a commercial loan?
On Fannie Mae loans, 1% of the unpaid principal balance plus a servicer review fee and counsel fees. Freddie Mac charges 1% on loans with pre-July 2014 loan agreements and follows the loan documents on later forms. CMBS and bank fees are whatever the loan agreement says.
Does the seller’s guarantor stay on the hook?
The lender requires a new guarantor acceptable to it. Whether the original guarantor is released, and for which periods, is a negotiated term of the consent; get it in writing before closing.
How long does a loan assumption take?
Plan it as a workstream that starts when the contract is signed. Freddie Mac’s servicer must submit its package at least 15 days before the transfer date, after collecting the buyer’s documents, and CMBS consents for large loans add rating agency and controlling class steps.
Is an assumption better than paying yield maintenance or defeasing?
When the coupon is below market, usually yes for both sides combined: the seller avoids the prepayment cost and the buyer gets a rate worth more than the fee. Compare it with defeasance or yield maintenance on the closing date. See defeasance decisions in portfolio context.
Key takeaways
- A commercial loan assumption moves the whole loan, rate, covenants, reserves and prepayment terms included, to the buyer with the lender’s consent.
- Fannie Mae charges a 1% transfer fee plus review and counsel fees; Freddie Mac charges 1% on older loan agreements and follows the documents on newer ones.
- The lender reviews the buyer’s experience, credit and financial condition, the property’s condition and a current DSCR, and requires replacement guarantees.
- A below-market coupon has a present value that belongs in the sale price, set against the extra equity the buyer needs.
- Track assumability, fees, guarantor release terms and the payoff cost for every loan on a sale list.
Related reading
- Lender consent requirements
- Managing agency loans
- Tracking CMBS loans as a borrower
- Commercial prepayment penalty types
- Commercial real estate refinance
- Guaranty and recourse loan in the glossary
A below-market loan is worth money to the next owner. LoanBoss puts the payoff cost and the consent terms in front of the team before the sale is priced.
Sources
- Fannie Mae Multifamily, Form 4636.T/A, Transfer/Assumption (2024)
- Freddie Mac Multifamily Seller/Servicer Guide, Chapter 41, Transfers of Ownership, and Exhibit 10, fee schedule (2026)
- Fannie Mae Multifamily, Fixed-Rate Mortgage Loans Term Sheet (2026)
- GS Mortgage Securities Trust 2020-GSA2, preliminary prospectus (Form 424H), SEC EDGAR (2020)