Thoughts on Mortgage Assumptions

[panekkkk]

Anyone out there familiar with or working in the area of mortgage assumptions? Any projections for the future? I'm guessing with dropping interest rates will be a shrinking market for assumptions. Are there any real benefits to buyers aside from a lower interest rate?

Anyone willing to share any experiences or thoughts on the topic. Is this a smarter investment? Or is it not worth the hassle?

 

[daveto]

This is a very useful blog on the topic
http://www.canadianmortgagetrends.com/

 

[fieras]

I guess it's one way of owning a home without putting anything down... but why would a seller do this, unless they're in dire straights and need to offload their property.

I guess it would also depend on how much equity they got into the joint, what interest the mortgage is locked in & so on... I have never head of anyone assuming a mortgage, is this common?

 

[panekkkk]

I'm not sure. Trying to find out just how common it is I guess. If mortgage rates fall considerably it might become pretty lucrative in a few years if rates rise again.

Anyone have an idea on how common this sort of thing is?

 

[Devils Advocate]

Anyone out there familiar with or working in the area of mortgage assumptions? Any projections for the future? I'm guessing with dropping interest rates will be a shrinking market for assumptions. Are there any real benefits to buyers aside from a lower interest rate?

Anyone willing to share any experiences or thoughts on the topic. Is this a smarter investment? Or is it not worth the hassle?

Briefly, one of the first thing to consider is the terms and conditions as contained within the specific mortgage document.

Most mortgage documents, although similar in nature are not always identical and even when the terms of a particular mortgage referred to as the mortgages “Standard Charge Terms†is registered with the Ontario Government and assigned a registration number, does not ensure that the lender in question has not attached an Addendum and/or a Schedule to a particular mortgage document thereby amending the “Standard Charge Terms†as was originally recorded.

Therefore, prior to making any commitment, a person would be well advised to have the specific mortgage document in question, reviewed by a lawyer familiar with mortgage documents.

Today most mortgage documents contain an escalation clause whereby, the full balance of the mortgage becomes due and payable forthwith, should the mortgagor default on any of the terms of the mortgage.

The right of the mortgagor / borrower to exercise any or his or her rights as may be contained in said mortgage, begin with the premise “when not in default, the mortgagor may ....â€

A significant number of mortgage documents as prepared on behalf of either institutional lenders and/or private lenders do not permit the assignment of their mortgage.

Those institutional lenders and/or private lenders that did permit an assignment of their mortgage, would only consent to the assignment or their mortgage, provided the new mortgagor was creditworthy and financially approved by the lender. Further, such lenders would not release the original borrower (Mortgagor / Chargor) from liability for the debt.

Therefore, in the event of a default by the assignee (new borrower) the lender had the option of choosing which of the two parties to pursue (original mortgagor or the assignee) for the repayment of the debt and usually the lender chose to pursue the most financially able of the two parties.

Important Notice: This information is provided as basic educational information by the author and is not a substitute for the advice of an expert and/or the advice of a lawyer. There is NO representation as to legality, accuracy, correctness of the herein
information and the reader is strongly urged to consult a lawyer in the relevant jurisdiction to ensure accuracy before acting on this information .

 

[Observer Walt]

Excellent advice by Devil's Advocate. Most sellers prefer to clear the mortgage upon closing of a sale, for the reasons cited. Mortgage assumptions are not common. Most MLS listings will state, in the section devoted to existing mortgages, "treat as clear" or the abbreviation "TAC", meaning that the seller intends to clear the mortgage on closing.

In the relatively rare event that a mortgage can be assumed and the deal is structured on this basis, the rate difference between the mortgage to be assumed and the current rate may be a selling feature. A mathematical calculation can be done to quantify the benefit or the disincentive as the case may be, and sensible people would reflect that in the sale price.

I would reiterate that a mortgage should not be assumed without competent legal advice, whether you are the buyer or the seller.

 

[dpylyp]

Assumable Mortgages

Were very popular during the late 80's and into the 90's. Many mortgages had assumable without qualification clauses that let someone in to purchase cash to existing mortgage. You took over the rate till term maturity then the lender renewed with you.

With rates going up, assuming a mortgage would be beneficial to the Buyers as the initial borrower has alread paid the CMHC fee to qualify (if Hi Ratio)
so they save on the rate and the lenders fee. They would in light of FIN TRAC and qualification; be required to disclose who they are to the lender.

I think we will see more of these assumptions as prices soften and the qualification criteria is much more rigid.