mortgagetakeover
26 | winter 2015 mbabc.ca MortgageBroker
BY Ray Basi Director of PolicY anD eDucation
Sellers, buyers and lenders need to protect against risks when a mortgage is assumed
Assumptions
of Mortgages
When a purchaser buys real estate
and takes over the seller's obligations under
a mortgage already registered against the
property, the purchaser has assumed the
mortgage. How does a mortgage being
assumed affect the rights of the seller, the
buyer and the lender?
Is the issue relevant in today's market? With
mortgage rates currently at historic lows,
it is rare that a buyer would want to assume
an existing mortgage. e buyer can generally
negotiate a mortgage at least as good as the
existing one. e topic should nevertheless
be of interest because:
• ere are some mortgages out there that
charge a rate of less than prime
(e.g., prime minus 0.75%). ose kinds of
rates made sense when interest rates were
double digits; they are generally no longer
available. ese mortgages can be attractive
to buyers.
• A mortgage put into place at today's low
rates may become very attractive to be
assumed in the future when rates go up.
Assuming a mortgage
Generally a buyer assumes the mortgage on
exactly the same terms as currently exist.
e buyer takes over making payments and
performing other obligations as they become
due. If the buyer wants to carry a smaller
mortgage than the one on title, the seller may
need to pay down a portion of the mortgage.
e seller will want to make sure this is
permitted and be aware of any prepayment
penalties that may be triggered.
If the buyer wants a larger mortgage, there
is almost certain to be a new mortgage. ere
are ways around this but discussing them is
beyond the scope of this article.
Benefits and risks
An assumption of mortgage presents potential
benefits and risks to all parties.
e seller may avoid having to pay out a
non-portable mortgage early and triggering
prepayment penalties. Most mortgages include
clauses that state that a sale of the mortgaged
property causes the mortgage to be due.
26
| winter 2015 mbabc.ca MortgageBroker
