Typically, when you sell your home you are, essentially, terminating your financing agreement with your bank or lender so that someone else can take over the payments on the property. With assumable mortgages, you basically sell your home with your mortgage, allowing the new homeowner to take over payments on the existing mortgage.
Why would someone want to assume your mortgage? It may be attractive if the current homeowner has a low-interest, longer-term mortgage, and if mortgage rates have risen since they bought. If you are a seller and have a mortgage with a great rate and flexible options, you may want to market your home and its assumable mortgage.
If approved, the buyer will take over the remaining mortgage payments to the lender and will be legally responsible for the mortgage terms.
In some provinces, the seller may remain liable for the mortgage after it has been assumed by the buyer. However, some lenders may agree to release the seller from any personal liability if the buyer meets the lender’s qualifications. Why you may still see some saying that, in Alberta, borrowers may not need to qualify in order to assume a mortgage, most lenders have added this requirement for assumable mortgages in this province.
Most fixed-rate mortgages can be assumed, while variable-rate mortgages and home equity lines of credit cannot. The terms of the original mortgage must stay the same.
Assumable mortgages can be complicated. If the buyer needs to borrow more money in order to assume the mortgage, he or she may be able to apply for a higher amount with the lender. However, if the buyer needs less than the outstanding mortgage balance, the seller will have to pay off the difference. As a result, the seller may be required to pay a prepayment charge.
Homeowners who want to move to a less expensive home and who still have several years left on their existing term can avoid prepayment charges by letting the buyer assume the mortgage.
Mortgage brokers like Ashton Mortgage Solutions have access to a number of lenders offering excellent rates and incentives, and can tailor your mortgage to perfectly suit you and your lifestyle. We will find you the very best mortgage rates for your new home in Calgary and ensure your mortgage is as flexible as you need it to be. We’ll be happy to perform a financial review for you to get you started!
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