Everyone knows the old saying about making assumptions. “When you assume you make an…”you get it. There is one instance where assumptions are the right thing to do – when it comes to your mortgage. The purchase of a new home can be quite costly and usually entails some form of financing to make the purchase a possibility. More often than not a potential buyer takes out a mortgage for the purchase. Our experienced brokers will help you with this alternative to the traditional mortgage: an assumable mortgage.

An assumable mortgage is a mortgage in which a qualified buyer can take over said mortgage upon the sale of the mortgaged property. Assuming a mortgage provides a buyer with below market interest rate (if rates are now higher) and you’ll reap huge savings on the legal costs of creating and registering the whole mortgage. Not too shabby! Assumption involves a simple revision to the mortgage document registered on title.

This type of mortgage permits the borrower to assign the balance of the loan to the new buyer without penalty when the mortgaged property is sold. Having an assumable mortgage has proven time and time again to be a major benefit to the borrower especially if interest rates embark on a steep upward climb. 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 this type of mortgage. This is due to the fact that if interest rates rise, the cost of borrowing increases. If the buyer is able to take over the sellers relatively lower-rate mortgage, the buyer will save by avoiding the higher, current interest rate. However, the home’s full cost may not be covered by the assumable mortgage and a top-up amount may be needed.

For example, if the seller has an assumable mortgage amount of $100,000 but is selling the property for $150,000; the buyer will be responsible for the additional $50,000. Basically, the buyer can only assume $100,000 worth of the cost of the property. The rest will have to be borrowed from the same lender at the current interest rate. It sounds complicated but our seasoned brokers know all the how-to’s and will make the entire process as easy tying your shoes.