If the buyer of a property in Ontario takes over the conditions of the seller’s mortgage (the amount owing for the remaining term at the existing rate), this is called assumption of the mortgage.
As a BUYER, you need to look at this carefully. In some cases, it will work in your favour, especially if the high ratio insurance premium has already been paid.
The first thing you have to do is to find out the details of the mortgage you could be taking over – what is the amount of the mortgage remaining? What is the interest rate and when is the renewal date (the date the rate ends)? How much time is remaining in the amortization?
You need to make sure that the mortgage amount is enough for your needs and that the rate you are assuming is comparable to (or better than) current rates for the same length of time. You also need to consider the conditions of the mortgage contract – you may find it contains conditions you don’t like.
If interest rates have been going up, then assuming a mortgage could be very much in your favour.
However, if rates have been stable, or going down, you will probably get a better mortgage by going to your mortgage broker and applying for a new mortgage.
All of the major lending institutions insist on the purchaser qualifying for the assumable mortgage, so if you would not normally qualify for a mortgage, you will not qualify to assume a mortgage either.
If you are SELLING your property in Ontario, and you have a good interest rate, you should first look into using any portability option offered by your lending institution. Usually you must be purchasing a new home at the same time as selling the old home, and you still need a mortgage.
However, there are two main reasons for letting someone assume your mortgage in Ontario:
- If the real estate market is depressed in Ontario and you have a good interest rate on your mortgage, an assumable mortgage may help you to attract potential purchasers.
- If someone assumes your mortgage (the whole amount) your lending institution should not charge you any penalty.
If you are selling your property and your lending institution does NOT insist on the buyer qualifying for your mortgage, the most important thing to check is whether you will be released from that mortgage! If not, you could still be liable for the debt even though you have sold the property!