Assuming a Mortgage

Carola Signer • February 3, 2023

Assumability of a mortgage is a mortgage feature that allows a buyer to “take over” the original mortgage secured by the seller when buying their property. To assume a mortgage, all mortgage terms must remain the same, and the buyer has to qualify for the mortgage to the lender’s satisfaction. Typically, fixed-rate mortgages are able to be assumed, while variable-rate mortgages and lines of credit are not assumable. 


For example, let’s say you purchased a home for $500k with a $300k mortgage and $200k that you saved for a downpayment on a 5-year fixed at 2.5%. A year later, you needed to sell your property because you took a job in a new city. You could sell your property and allow the buyer to assume your mortgage. If interest rates are now sitting at 5% and the property is now worth $550k, and you paid the mortgage down to $250k, the advantage to the buyer would be that they could assume your mortgage for the next 4 years at half the interest rate. Of course, they would have to qualify for the mortgage and come up with $300k to complete the purchase. 


Advantages of assuming a mortgage


As outlined in the above scenario, assumable mortgages are an attractive option if interest rates have gone up and the seller has a lower interest rate than what is currently available in the market. If the mortgage is assumed, the buyer will benefit from a lower interest rate. Also, the seller could avoid paying a prepayment penalty for breaking the mortgage midway through the term. Potentially, there is a chance to save on legal costs as well. 


Drawbacks of assuming a mortgage


For the buyer, when you’re assuming a mortgage, all the terms and conditions of the mortgage must remain the same, and you have to qualify for the mortgage. You’ll be scrutinized the same way you would for a new mortgage, and you’ll be required to pay the difference between the property value and the mortgage amount from your resources to complete the sale. Secondary financing is not an option with a mortgage assumption. 


For the seller, one of the significant issues faced is when someone assumes your mortgage, should they default on the payments; depending on which province you’re in and the terms and conditions of the mortgage assumption, there’s a chance the lender can still hold you liable for the mortgage. This means even if someone assumes your mortgage, you could still be on the hook for payments should they stop making payments or default on the mortgage. 


While it is possible to assume a mortgage, the truth is that mortgage assumptions are pretty uncommon in Canada.

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