REAL ESTATE TALK with Julie Brandle: Mortgage assumptions

For the Lakeside Leader

Because we have so many homes on the market this year, sellers are asking us for more creative ways to sell their homes. Assumptions are just that. What is an Assumable Mortgage? It is an existing mortgage that a buyer of a home, can take over from the seller, usually with little to no change in terms, especially interest rate. The buyer agrees to make all future payments on the loan as if they took out the original loan in the first place. With interest rates maintaining their absolute lows in many years, there hasn’t been much incentive or demand for buyers to assume existing mortgages like there was back in the 1980s & 90s when rates were an incredible 18-20 per cent! They have changed those rules since then and most of the time you have be approved by the lender to assume the remaining balance, just as if you were qualifying for your own brand new mortgage. Common misconceptions about assumptions are: a) that every mortgage in Alberta is automatically assumable and b) the seller’s liability ends upon the buyer making 12 consecutive payments or upon renewal. If the mortgage being assumed is high-ratio insured, then extra caution should be exercised by the seller as they will remain personally liable for any deficiency on the mortgage for the remaining life of the mortgage (including renewal terms)! One advantages to Assumptions, is if the seller’s mortgage rate is lower than today’s posted rates or is lower than the rate the buyer might be able to get based on their credit history, it may be a win-win for both buyer and seller. Disadvantages, however are that the buyer may have to have an hefty upfront amount of cash – if the value of the home is greater than the mortgage that remains on the home, as the buyer needs to come up with the difference between the sale price and the remaining mortgage. If the buyer has to take out another loan to be able to do that – does it still make sense to assume? Obviously there is more to assumables, so I suggest talking to your lender and your Realtor® for more information. For any Real Estate needs, call Royal LePage Progressive Realty at 780- 805-3111, visit our webpage at www.Royallepageslavelake.com or drop by the MRC and visit our kiosk!

 

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