The mortgage assumption value (MAV) is the cash equivalent, at the current point in time, of all future savings that could be achieved by assuming an existing low-interest-rate home mortgage loan rather than taking out a new higher interest rate loan and accounting for the time value of money.
The mortgage assumption value can be calculated as the net present value of the sum of the future monthly payment savings due to the assumable loan rate being lower than the prevailing new loan interest rate.
The calculation may take different forms, below are two examples: An illustrative example using the 30-year fixed rate mortgage (historically the most common mortgage type in the United States)[2] for comparison: A $100,000 assumable mortgage loan with a 4.00% rate has a corresponding monthly loan payment of $477.42.
In this example let’s say the loan is assumed after 3 years (36 months) and that the unpaid principal balance will have reduced to $94,499.
Now discount using a prevailing rate of 6.00% the 324-month (27 years) series of $112.24 hypothetical cash flows to yield a [net present value] of $17,988.