Wednesday, November 12, 2008

Assumable Mortgages as Marketing Tools

With Toronto Real Estate softening and the prices showing signs of adjustment; It might be worthwhile to look at homes for sale that have an existing mortgage that could be assumed, as a marketing tool to get your home sold.

Consider interest rates; they have not increased dramatically in the short term but could and I believe will rise in light of global borrowing as the need to attract investors for bonds and certificates in financial markets becomes interest rate sensitive.



Mortgagors on a property most suitable for this kind of program are already high ratio and have paid the CMHC Insurance fees. (previously added to the mortgage balance) If this mortgage is assumed the NEW borrower is paying CASH to the existing mortgage. They would be required to qualify for the debt at the current rates, credit criteria and guidelines. An additional property appraisal may be required.

Simply put, on a 300K assumption this could be a savings of $8,000, or on a 400K mortgage could be $11,000. CMHC Ratio fees range from 0.65 to 2.75% on a graduated scale based on the level of advance to value.

Briefly, one of the first things to consider is the terms and conditions as contained within the specific mortgage document.Most mortgage documents, although similar in nature are not always identical and even when the terms of a particular mortgage referred to as the mortgages “Standard Charge Terms” is registered with the Ontario Government and assigned a registration number, does not ensure that the lender in question has not attached an Addendum and/or a Schedule to a particular mortgage document thereby amending the “Standard Charge Terms” as was originally recorded.Therefore, prior to making any commitment, a person would be well advised to have the specific mortgage document in question, reviewed by a lawyer familiar with mortgage documents.Today most mortgage documents contain an escalation clause whereby, the full balance of the mortgage becomes due and payable forthwith, should the mortgagor default on any of the terms of the mortgage. The right of the mortgagor / borrower to exercise any or his or her rights as may be contained in said mortgage, begin with the premise “when not in default, the mortgagor may ....”

A significant number of mortgage documents as prepared on behalf of either institutional lenders and/or private lenders do not permit the assignment of their mortgage. Those institutional lenders and/or private lenders that did permit an assignment of their mortgage, would only consent to the assignment or their mortgage, provided the new mortgagor was creditworthy and financially approved by the lender.

Further, such lenders would not release the original borrower (Mortgagor / Chargor) from liability for the debt. Therefore, in the event of a default by the assignee (new borrower) the lender had the option of choosing which of the two parties to pursue (original mortgagor or the assignee) for the repayment of the debt and usually the lender chose to pursue the most financially able of the two parties.

Important Notice: This information is provided as basic educational information by the author and is not a substitute for the advice of an expert and/or the advice of a lawyer. There is NO representation as to legality, accuracy, correctness of the information herein and the reader is strongly urged to consult a lawyer in the relevant jurisdiction to ensure accuracy before acting on this information.

3 comments:

elle marketing communications said...

Check out www.homeassume.com. A website that serves as a one-stop shop for assumable mortgages bringing buyers and sellers together. A seller can post info and loan terms regarding the property along with pictures. Buyers search for free.

Elegant Homes in West Toronto said...

Someone commented that the post was incorrect;

I have verified the details yet again and attach this as a final answer.

The following was received from CMHC tempey@cmhc-schl.gc.ca; on behalf of; cpc@cmhc-schl.gc.ca

....The other item we discussed was an assumption of a CMHC insured mortgage, this is really an underwriting question and you may wish to check with a CMHC underwriter at 888 463 6454.
However, as I understand, the approval of the assumption is a Lender responsibility, if the new purchaser is paying cash to the mortgage there is no additional CMHC fee or premium to be paid.

David Pylyp

Matthew said...

It wasn't till Roosevelt put consumer friendly sanctions on banks that the open, and much more reliable mortgage loan system began to form and it revolutionized not only the banking and housing system, but it paved the way for all other mortgage loans system began to form and it revolutionized not only the banking and housing system, but it paved the way for all other forms of purchase and sale. After the FHA was created in 1934, home buying became something that not just the wealthy could afford to do. After the creation of 20-30 year mortgages in the Fifties the system became more like it is today.

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