Alberta is the only province in Canada where you can legally assume a mortgage (with qualifying). How it works:- let’s say a home is listed for $279,900 and has a mortgage of $250,000. If, after negotiation, you are able to purchase the home for $277,000, your “cash to mortgage,” (CTM) or the amount of money you have to pay to buy the property, is $27,000.
It should be noted that assumable mortgages always require a down payment, and this is usually in excess of the 5% required by banks. Assumables are not necessarily a low-down payment option to conventional bank financing. Also, in early 2009, new legislation mandated that buyers assuming mortgages MUST qualify.
The upside of assumable mortgages:
Cheaper legal costs. Since the mortgage is already registered on the property, a lawyer doesn’t have to charge you to register one. The average legal cost for conveying title for a buyer on an assumable mortgage is about $550, compared to about $750 if you bought and created your financing through a lender or mortgage broker.
Great interest rates. If interest rates increased within a one year period and you bought a home with a one year old mortgage, you would get a better rate than if you created financing to buy.
The downside of assumable mortgages:
Typically there is not as much housing inventory for assumables. So, you may not get to look at as much inventory as you would if you could qualify for a mortgage.
Paying top dollar for your home. Many assumables are priced at or slightly above fair market value. So, in many cases, if you cannot qualify, you will pay a premium to assume a mortgage without qualifying. However, in most cases, paying a mortgage and gaining equity is usually better than paying rent.
Higher interest rate. If interest rates have gone down in the last two years, and you buy a home with a two year old mortgage, your interest rate would be higher than if you were able to qualify.
When to start looking:
If you decide an assumable mortgage property is what you want,make sure you have enough money before you start searching. Typically, the good assumables start in the $25,000 to $30,000 cash-to-mortgage range. Usually the more money you have available to put down, the more inventory you can look at before making your purchase.
If you have any other questions regarding assumables, or you require assistance with your home search, feel free to call Mary McLean, Sutton Group Lethbridge, 403 302 6411, or e-mail: info@teammiller.ca
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