Assumable Mortgages in Calgary: What to Know
Assumable mortgages can have benefits for both buyers and sellers, especially during times with high interest rates. Home buyers can get a lower interest rate, and sellers can attract more buyers.
Whether you’re a first-time buyer or an investor, the idea of assumable mortgages can be enticing. That said, there is risk involved in assumable mortgages. To decide if an assumable mortgage is right for your Calgary home, here’s everything you need to know about them.
What Is an Assumable Mortgage?
An assumable mortgage is when a home buyer buys a home and takes over the seller’s existing mortgage. So instead of the buyer porting a mortgage from their previous house or getting a new mortgage, they assume the mortgage that is already on the house.
Assumable mortgages make the most sense in times of high or rising interest rates, as the existing mortgage likely has a lower interest rate. While it sounds like a no-brainer, there are lots of factors to consider before buying or selling a home with an assumable mortgage.
Are Mortgages Assumable in Canada?
Yes, mortgages are assumable in Canada. However, all assumable mortgages in Canada are qualified, which means that the buyer assuming the mortgage must still qualify for the loan. So just like a regular mortgage, you must meet the mortgage lender’s requirements for things like income and debt to assume the mortgage.
In Alberta, there are also rules that allow the mortgage lender to come after the original mortgage holder in the event the mortgage is not paid. This means that if a buyer assumes your mortgage, you could be on the hook for paying it if they don’t.
The Pros & Cons of Assumable Mortgages
Pros
- They can help you sell your home faster and for more money if the interest rate is lower than current interest rates. An assumable mortgage with a lower rate can be a selling feature compared to similar homes without an assumable mortgage.
- They can save buyers money on interest. Depending on the term and mortgage amount, this could be tens of thousands of dollars.
Cons
- You can’t port or transfer an existing mortgage. If you are assuming a mortgage, it means you can’t port or carry over the existing mortgage from your current home. This means if you have a mortgage currently, it will need to be paid off fully before you can assume another mortgage.
- You could be liable for paying the mortgage. In Alberta, you can be responsible for paying the mortgage if the person who assumed the mortgage can’t pay it.
- You could need a significant downpayment. Typical down payments are between 5% - 20%. If you’re assuming a mortgage, you must pay the difference between the mortgage amount remaining and the sale price of the home, which could be higher than the typical 5% - 20% down payment.
Do You Need a Down Payment to Assume a Mortgage?
While it’s not a downpayment in the traditional sense, you will almost definitely need to pay some amount in cash. You will need to pay the difference between the remaining mortgage amount and the price of the home.
The exact amount will depend on the value of the home and mortgage, but expect to pay something unless home values have been decreasing. Depending on how exactly the home’s value has grown, this “downpayment” will likely be higher than your typical 20% downpayment.
For example, if you buy a home with an assumable mortgage for $600,000 and the mortgage amount remaining is $400,000, your “downpayment” will be $200,000. This is $80,000 more than the typical downpayment of $120,000 on a $600,000 home.
Are All Mortgages Assumable?
Even though mortgages can be assumable in Canada, not all mortgages are assumable. Certain mortgages and certain lenders may specify that the mortgage must be paid out when the house is sold (which means the mortgage can’t be assumed).
Every mortgage is different, so you’ll need to review your mortgage documents to see if your mortgage is eligible. Your mortgage broker can help guide you through this process.
Learn if You Qualify for an Assumable Mortgage Today
Every mortgage is unique, which is why it’s so important to have someone you trust guide you through your options. For advice on assumable mortgages and more, contact us, and the team at Spire Mortgage will be happy to help.