ORIGINALLY PUBLISHED November 18, 2024
Assumable mortgages
Adapted from the original 2024 article. Mortgage eligibility, fees and liability depend on the lender and the mortgage agreement.
What is an assumable mortgage?
An assumable mortgage allows a buyer to take over an existing mortgage from the seller, including the remaining balance and agreed terms. This can include the interest rate and payment schedule. The mortgage contract must permit an assumption, and lender approval is required. Sellers should ask their lender about eligibility and restrictions before presenting this as an option.
Potential benefits for buyers and sellers
An existing mortgage with a lower rate than currently available financing may appeal to buyers. It could reduce borrowing costs during the remaining term and make a property more attractive. Depending on the agreement, sellers may avoid some early repayment costs, and buyers may avoid certain costs associated with arranging a new mortgage. Savings are not automatic: compare all fees, conditions and the remaining term.
Seller responsibility
A seller may remain liable after a mortgage is assumed unless the lender releases them. Discuss a written release from liability with the lender and obtain legal advice before completing the transaction.
Covering the equity gap
The assumed mortgage may cover only part of the purchase price. For example, a $750,000 purchase with a $450,000 outstanding mortgage leaves a $300,000 difference to fund, before closing costs. The buyer needs sufficient cash or additional financing acceptable to the lender. Less seller equity may reduce this gap, but qualification and financing requirements still apply.
Navigating the process
Ask the lender to confirm whether the mortgage can be assumed, how the buyer qualifies, what fees apply and whether the seller will be released. Review the mortgage terms and purchase agreement with the appropriate professionals. A favourable existing rate can be useful, but an assumption should never be treated as guaranteed before approval.