assumable mortgage – is it for you?
Lets have a look
We’ve hearing some questions about assumable mortgages lately and wanted to share an old post. An assumable mortgage is, simply put, one that the lender will allow another borrower to take over or “assume” without changing any of the terms of the mortgage.
Assuming your mortgage
If you are a mortgage holder looking to have someone assume your mortgage, you’ll want to know the following.
- The ‘assuming’ party MUST qualify using the current lending criteria and the mortgage lender must approve of the transfer.
- All your responsibility must be removed from the original mortgage agreement
- If the mortgage was insured – There would be liability for the original borrower if the secondary borrower defaults and a full release was not given to the original owner;
- If the mortgage was uninsured the lender can go after the security
Taking over an assumable mortgage
As someone looking to assume a mortgage you’ll want to know:
- You will have to qualify and be approved by the mortgage lender
- You are responsible for the difference between the purchase price and the mortgage balance (for example, purchase price of $375,000 , current mortgage balance $300,000 you are responsible for the $75,000 difference)
investigate your options
Historically we’ve seen mortgages being assumed at times when interest rates were high and the buyer wanted to take advantage of a better rate. Today, it may not be advantageous to assume an existing mortgage, due to current rates being so low. However, in some cases it may be advantageous to the seller to have a mortgage assumed, avoiding a payout penalty, which may help the property sale.
If you are considering an assumable mortgage, from either side, make sure you understand the existing mortgage and any restrictions.
Want to discuss your thoughts and ideas on an assumable mortgage? We are happy to review your situation and bring forward some suggestions.