What is an assumption (in real estate)?

Years ago, someone told me that a relative of ours got a beautiful house because they had taken over the mortgage from friend who were moving to another city. According to family folklore, this relative only paid $100 or $1000 on the house (depending on who you ask). How was this possible?

This was an assumable mortgage made possible by an agreement called an assumption. This means that they buyer agrees to assume responsibility for the payments on an existing mortgage. These agreement alleviate some of the hassles the buyer and seller would have in a conventional home sale. And if, as in the case mentioned above, the remaining mortgage balance is very small, it is great for the buyer. (Although we know few home sellers who could afford to be so generous.) The buyer avoids having to take out a brand new mortgage loan and doing this may help the buyer avoid higher interest rates.

But the buyer does not always get to just take over the mortgage: sometimes the bank will ask the buyer to pay an assumption fee.