What does the term 'assumption' indicate in mortgage financing?

The term 'assumption' in mortgage financing refers to the situation where a buyer takes over the seller’s existing mortgage debt and agrees to pay it off under the original terms. This typically occurs when the buyer agrees to perform the financial obligation of the seller to the lender, essentially stepping into the seller's shoes for that mortgage.

In this context, assumption allows the buyer to benefit from potentially lower interest rates or favorable terms that the existing mortgage may have, compared to what may be available in the current market for new loans. It is particularly common in real estate transactions involving portable mortgages, where existing terms can be advantageous for the buyer by retaining favorable conditions from the original loan.

The other options relate to different aspects of mortgage financing but do not accurately reflect the specific definition of assumption. For instance, issuing a new loan reflects a separate transaction distinct from assumption, while changing ownership pertains to the transfer of title rather than the obligations tied to financing. Renewal of an existing mortgage signifies a renegotiation of terms, which also does not align with the notion of taking over an existing obligation.