In what scenario would a borrower potentially face an assumption fee?

A borrower may face an assumption fee in a scenario where a loan is being transferred to another borrower. This situation arises when the original borrower is allowed to transfer their mortgage obligation to a new borrower, who then assumes responsibility for making the mortgage payments. Assumption fees are typically charged by lenders as part of the cost for processing the transfer of the loan and ensuring that the new borrower meets the lender's credit qualifications.

In contrast, refinancing an existing mortgage involves obtaining a new loan, typically for better terms, and does not typically involve assumptions of the original loan, therefore no assumption fee is applicable. Applying for a new mortgage also does not incur an assumption fee since it is a separate loan process altogether. Paying off the mortgage early might involve other fees, like prepayment penalties, but an assumption fee is not relevant in this scenario.