The basics of assumable mortgages. to assume or not to assume?

The basics of assumable mortgages

The basics of assumable mortgages. to assume or not to assume?

Many of our clients inquire on properties that are listed as having an "assumable mortgage", as the concept of just taking over a mortgage seem so appealing.

However, there is a lot more to it than that, so I thought it was time to educate potential buyers on the facts and general concept of assumables.

In a nutshell, an assumable mortgage is a mortgage where a buyer can take over the amount and terms and begin making mortgage payments based on those terms once they take possession of the property. Nowadays, lenders require the assumer of a mortgage to qualify for the amount and interest rate of the mortgage, so you will still require a down payment (lenders will not finance 100% of the value of any property). This can be accomplished by having the appropriate amount of equity built in to the property so that there is the equivalent of a down payment in the property or, failing that, you must still provide a down payment out of your own pocket. With an assumable, you have to qualify for the mortgage the property comes with, so it is not as simple as just taking it over. So, if you wanted to buy a particular property and you are satisfied with the interest rate and purchase price, I would arrange for you to talk to a representative of the lender who holds the mortgage (ie BMO) about assuming the mortgage. They will take an application from you and assess your ability to carry that particular mortgage, and determine if you will require an additional down payment (by assessing the purchase price in relation to the market value of the home).

If interest rates have risen since the original mortgage was taken out by the seller, the buyer is the party that benefits the most from an assumable mortgage. However, lately, the situation can be reverse: interest rates are lower than what they were when mortgages of a longer term were taken out. So, in many cases, when you take in to consideration the pertinent factors when assessing a mortgage (principal, rate, and down payment required) there may not be any benefit for you to assume a particular mortgage when you consider the rate that your own bank or mortgage broker can obtain for you.

With an assumable mortgage, you take over the term, interest rate and payments from the seller, and the seller is liable to the lender for any default by you.

Regardless of whether a mortgage is assumable or not, we work with some of the best lenders in the business and are aware of the going interest rates and terms at any given time. So, if you are considering the purchase of any property, call me on my cell at (780) 934-8514 and I will ensure that you obtain the most competitive purchase price and the financing arrangement that suits you best, whether it be assumable or not.

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