This is when you as a buyer of a property take over the conditions of the seller's mortgage. This is the amount the seller still owes for the remaining term at the existing rate. This is called assumption of the mortgage. 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. This includes the amount of the mortgage remaining, the interest rate and what is the renewal date, or the date the interest rate ends. How much time is remaining in the amortization?
Other things to look at are the conditions of the mortgage contract, are the conditions ones you like or dislike. You need to ensure 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. 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
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 the seller there are a few things to consider before letting someone assume your mortgage. The main one being if you have a good interest rate, you should look into using any portablity option offered by your lending institution. This means that normally you must be purchasing a new home at the same time as selling the old home, and you still need a mortgage.
There are two main reasons for letting someone assume your mortgage. The first is if the real estate market is depressed in your area and you have a good interest rate on your mortgage, an assumable mortgage may help you to attract potential purchasers. The second is if someone assumes your mortgage (the whole amount) your lending institution should not charge you any penalty.
One thing to watch out for if you are selling your property and your lending institution does not insist on the buyer qualifying for your mortgage, check 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!