Assumability

Assumability can be beneficial if you want to take over (assume) an existing mortgage that has a lower interest rate than current market rates. Being able to offer an assumable mortgage can make it easier for you to sell your home when you put it on the market.

Benefits of Assumable Mortgages

1.  Reduced Legal Costs

The mortgage is already registered against the property. This means you don’t have to pay legal fees to register the mortgage. This can save you about $200.00.

2. Ability to Own Multiple Properties

As long as you are able to demonstrate an acceptable debt service ratio to lenders, it is possible to own more than one property and have more than one mortgage in your name.

3. Better Interest Rate Options Possible

Often the mortgage rate a seller has to offer on an assumable mortgage is better than what you could get now.

Considerations Before Assuming a Mortgage

1.  You may pay more for your home.

Convenience may come at a cost. It’s common for assumable mortgages to be priced at or slightly above fair market value. This is especially true if the assumable mortgage is insured by CMHC or Genworth mortgage default insurance. This fee may be built into the monthly mortgage payment.

2.  You may assume a higher interest rate.

Don’t assume that the rate on an assumable mortgage will be lower than a new mortgage.

3.  You may need to have a larger down payment.

The seller needs to cover any equity built up in the home. This may mean that you must have a larger down payment than if you sought a new mortgage.

4.  You will still have to qualify with the lender.

If you are purchasing a property, you will still have to demonstrate your ability to pay the mortgage you are assuming. Expect to supply the same information any mortgage lender requests before lending money.

An assumable mortgage can be a great option for buyers and can make selling a home easier for sellers. If you want to keep all your options open, look for a lender who is willing to either allow assumption of the loan or portability so you can take your loan with you to a new home.