What is a primary purpose of establishing assumption fees in mortgage transactions?

The primary purpose of establishing assumption fees in mortgage transactions is to ensure that the lender recoups costs related to loan assumption. When a mortgage is assumed, the new borrower takes over the existing loan, which can involve administrative work and potential risk for the lender. The assumption fee compensates the lender for this process and helps to mitigate any financial impact that might occur from allowing someone else to take over the loan. This fee ensures that the lender is able to cover costs associated with processing the assumption, such as evaluating the creditworthiness of the new borrower and updating loan documents.

Understanding this concept highlights the importance of managing lender risk and maintaining financial efficiency throughout the loan process. The assumption fee acts as a safeguard for lenders while also acknowledging the administrative efforts required to facilitate a smooth transition between borrowers.