Minnesota State Real Estate Practice Test

In the event of a mortgage assumption at closing, what is the adjustment if the monthly interest is $600 and the seller's payment is made?

1. Debit seller $600; credit buyer $600

2. Debit seller $300; credit buyer $300

3. Debit seller $400; credit buyer $400

4. No adjustment needed

The correct answer is: Debit seller $300; credit buyer $300

In the context of a mortgage assumption at closing, an important consideration is how to allocate the ongoing monthly interest payments that have already been incurred but not yet paid. In this scenario, the monthly interest payment is $600, and since the seller has made the payment, this creates an opportunity for adjustment to fairly allocate that payment between the buyer and seller. When the seller has made the payment prior to closing, the buyer effectively benefits from this payment since they will be assuming the mortgage and will not need to make a payment on the same mortgage immediately. Consequently, there needs to be an adjustment to account for this payment. The adjustment would typically involve sharing the monthly interest expense proportionally between the buyer and seller for the part of the month that the seller owned the property before closing. If the payment is for a full month but the closing occurs halfway through the month, for example, both the buyer and the seller would be considered to have a share of this monthly interest obligation. Thus, if the seller has already paid the full $600, and assuming we need to adjust this for a described portion (like half a month), the adjustment would result in debiting the seller for the amount they have paid, while simultaneously crediting the buyer, who is assuming