By Trevor Damyan, Commercial Mortgage Broker at Commercial Lending Solutions
When a commercial real estate property sells with existing debt in place, the buyer faces a choice: assume the seller's existing loan or pay it off and originate a new loan. Loan assumption preserves the existing loan terms (rate, amortization, prepayment, recourse profile) and eliminates the seller's prepayment penalty exposure. New loan originations restart the loan structure at current market rates and terms. The decision depends on the existing loan's rate relative to current market, the seller's prepayment exposure, the buyer's financing preferences, and the lender's assumption policies.
Get Quotes from Both →Rate ranges reflect indicative pricing as of April 2026, sourced from active CLS CRE quote pipeline. Pricing is property, sponsor, and structure dependent.
Loan assumption wins when the existing loan has a coupon meaningfully below current market rates, when the seller faces material prepayment penalty exposure, or when the buyer values preserving the existing loan structure. In rising rate environments, assumption can deliver hundreds of basis points of rate savings to the buyer.
New loan origination wins when the existing loan has unfavorable terms, when the buyer wants to size the loan differently, or when the lender's assumption process is too slow or expensive relative to a new origination.
Calculate the rate spread dollar value. The dollar value of assuming a below-market loan is the rate spread times the loan balance times the remaining term. A $20M loan at a 5.50 percent existing coupon versus a 6.25 percent new market rate over 6 remaining years saves approximately $900K of interest. That savings is shared between buyer and seller in negotiation.
Calculate the seller's prepayment penalty. Yield maintenance and defeasance penalties on agency and CMBS loans can run 5 to 15 percent of unpaid principal balance in falling rate environments. A $20M loan with 7 percent YM exposure represents $1.4M of seller cost that is avoided through assumption. The savings is shared in transaction pricing.
Evaluate loan size and structure preferences. If the buyer wants to lever higher, take cash out, or change recourse, assumption may not deliver the structure the buyer needs. New origination provides full structural flexibility at the cost of starting fresh on the rate and prepay schedule.
Consider the lender assumption process. Some lenders streamline assumption with established processes; others treat assumption as effectively equivalent to a new loan underwriting. Lender assumption policies affect timeline, fees, and feasibility.
On a $14M sale of a stabilized Class B multifamily in a Tier 2 market, the seller's existing Fannie Mae DUS loan had a 4.85 percent fixed coupon with 6 years remaining and a 5 percent yield maintenance prepayment exposure (approximately $700K in the current rate environment). New loan origination would have priced at 5.85 percent fixed 10-year, 100 basis points wide of the existing coupon. The buyer assumed the loan at a 1.0 percent assumption fee ($140K) and the seller credited approximately $400K of the avoided YM into the purchase price. The buyer captured the below-market 4.85 percent rate for 6 remaining years, saving approximately $840K of interest versus a new origination over the remaining term. Total deal value preserved by the assumption was approximately $1.2M shared between buyer and seller.
All deal references anonymize borrower and lender identities and use city-level geography only.
Loan assumption is one of the most underused transaction structures in commercial real estate. In rising rate environments where existing loans are 75 to 200 basis points below current market, assumption captures real value for both buyer and seller. The lender approval process is straightforward and the structural benefits are real.
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