What Are Assumable Mortgages?

Interest rates in Canada are predicted to rise over the next few years. With this prediction, many people are thinking about mortgage assumption, also known as assumable mortgages. This type of mortgage, basically, allows the buyer to assume or take over the seller’s existing mortgage. This is only possible, however, upon the approval of the lender. Learn more about the ins and outs of assumable mortgages through the following facts.

The assumable mortgage process

This mortgage is actually a financing agreement where a seller is allowed to transfer his mortgage to the buyer. The transfer includes everything related to the seller’s existing mortgage including interest rates, mortgage terms, and of course the remaining balance. This gives the buyer a chance to get rid of the rudiments of negotiating a new mortgage, which in these times can have a higher interest rate.

The process is not commonly utilised simply because lenders do not recommend them as it will place them into a losing situation. Years ago, there was no formal approval needed for assumable mortgages. The seller back then, agrees that he will be responsible in case the buyer fails to make payments. Some were not at all interested with this type of mortgage.

The pros of assumable mortgages

mortgage refinance

It is clear that in assumable mortgages, interest rates are lower. This will give potential buyers a list of benefits as they can save much on closing costs as well as appraisal fees. Brokers and lenders can likewise help when it comes to reviewing the mortgage thus giving the buyer a detailed calculation. This will allow the buyer to get a better deal after all costs and considerations have been factored in. On the part of the seller, an assumable mortgage can be his best way to sell his property in the fastest possible time. Eligible buyers become enticed with the purchase basically because of the lower interest rate.

The cons of assumable mortgages

Assumable mortgages are not all benefits. There are drawbacks when availing one. The buyer, for example, has to assume higher monthly payments since the amortisation period becomes shorter. Mortgage insurance premiums may also be added to the cost of the mortgage thus increasing the monthly payments even more.

Sellers, on the other hand, may have to face risks since they are passing on the mortgage to someone who has not gone through the entire process of applying for a mortgage. When buyers default on payment, sellers have to take charge. Even when there is mortgage insurance already in place, the seller will still be obliged to pay any remaining balance.

An assumable mortgage is not your only way out of an increasing interest rate in the market. There is not even a guarantee that the lenders will approve your request for this type of mortgage plus it is still possible you have to undergo the necessary parts of the application process before getting approved. If you are looking forward to purchase a home and want to make sure you are getting the best deal, you have to check mortgage rates in Montreal first. You should also get advice from experts.

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