Advantages of Assumable Mortgages?

[chadmielke]

Hi, I`m relatively new to the real estate game and have never chanced upon an assumable mortgage until now. I`m wondering if someone could take the time to explain to me the pros and cons of assuming an existing mortgage as well as things to look out for when doing my due diligence. Thanks in advance!

 

[MikeMcCrae]

Assumeable mortgages used to be a big advantage, but with the rapid increase in value they are not as attractive due to the usual high cash to mortgage requirement. Some lenders are starting to make assumptions more difficult and you are often required to qualify now often this takes away the advantage. If you still want to do the assumption make sure it is in your offer to purchase that it is subject to the mortgage being assumable by you.

 

[Peter]

QUOTE (chadmielke @ Nov 21 2007, 04:03 PM) Hi, I`m relatively new to the real estate game and have never chanced upon an assumable mortgage until now. I`m wondering if someone could take the time to explain to me the pros and cons of assuming an existing mortgage as well as things to look out for when doing my due diligence. Thanks in advance!


Mortgages that are assumable tend to be older mortgages that the owner/client obtained some time ago and as such, tend to be at a low loan to value in comparison to the purchase price of a property. Most of the mortgage committments we have seen issued lately contain an "assumable upon qualification" clause which means that while the mortgage can be assumed by a new buyer, they would have to qualify under the lender/insurer guidelines to do so. If you do wind up having to qualify, the only benefit to trying to assume someone else`s mtg, rather than just get your own would be if the terms/rates are signifigantly better than what you can get in the current market. That being said, some mortgages are still traditionally "assumable" with no qualification at all - so a great option for the investor that could not otherwise qualify. You`ll be able to find out what type it is as soon as you go to assume it.

Talk to your broker about the pro`s and con`s of the mortgage that you are trying to assume. With all the improvements to investment mortgages such as extended amoritizations, increases LTV`s and high ratio insurance, you may be able to qualify for your own mortgage - with terms possibly even more attractive than what you are trying to assume.

Thanks

 

[chadmielke]

QUOTE (MikeMcCrae @ Nov 21 2007, 03:23 PM) Assumeable mortgages used to be a big advantage, but with the rapid increase in value they are not as attractive due to the usual high cash to mortgage requirement. Some lenders are starting to make assumptions more difficult and you are often required to qualify now often this takes away the advantage. If you still want to do the assumption make sure it is in your offer to purchase that it is subject to the mortgage being assumable by you.


Great stuff, thanks Mike!

 

[chadmielke]

QUOTE (Peter @ Nov 21 2007, 04:40 PM) Mortgages that are assumable tend to be older mortgages that the owner/client obtained some time ago and as such, tend to be at a low loan to value in comparison to the purchase price of a property. Most of the mortgage committments we have seen issued lately contain an "assumable upon qualification" clause which means that while the mortgage can be assumed by a new buyer, they would have to qualify under the lender/insurer guidelines to do so. If you do wind up having to qualify, the only benefit to trying to assume someone else`s mtg, rather than just get your own would be if the terms/rates are signifigantly better than what you can get in the current market. That being said, some mortgages are still traditionally "assumable" with no qualification at all - so a great option for the investor that could not otherwise qualify. You`ll be able to find out what type it is as soon as you go to assume it.

Talk to your broker about the pro`s and con`s of the mortgage that you are trying to assume. With all the improvements to investment mortgages such as extended amoritizations, increases LTV`s and high ratio insurance, you may be able to qualify for your own mortgage - with terms possibly even more attractive than what you are trying to assume.

Thanks


Wow great responses and speedy, thankyou very much!

 

[TylerUzelman]

I am probably one of the biggest fans of assumable mortgages.

My partner and I have built a business over the past 5 years, purchasing over 50 properties and not once having to go to the bank to apply for a mortgage. We have assumed them all! We have noticed that the market for assumables has tighten and loosened over the past few years a few times. Currently we are in a tightening time and some suspect the beginning of the end for non-qualifying assumables. We are current trying to purchase as many as we can with assuming the mortgages. They are still out their, but you do have to watch your contracts. We always put in the "Terms" section of our offers - "Seller warrants the non-qualifying assuambility of the mortgage". This protects us from running into new rules for qualifying. Some institutions have closed their doors, so you really have to be careful.

The biggest reason we like assumables is the ability for us to purchase property "no money down" or "little money down". This is done by assuming the 1st mortgage and negotiating with the seller to carry the remaining cash to mortgage as an investment by way of second mortgage(which can be RRSP eligible, but that`s another thread). We pay them a great interest rate and many just plan to put it in a GIC anyway so why not keep it with us and get a higher return... We have probably purchased 30+ properies this way.

Right now in the market there are quite a few mortgages that are assumable, however as previously mentioned the loan to value might be quite low. We are still interested in assuming these mortgages if the vendor is willing to carry a second mortgage to bring the cash needed to close to a smaller size. There is still a lot of opportunity for an investor to purchase real estate by assuming mortgages, however you either need deep pockets or great negotiating skills... or a bit of both...

Hope this helps,

 

[Dronadri]

I find some tax benefits by transferring my investment property spouse.

Is it necessary to her to qualify for assuming the mortgage in Alberta.



Can some one help me in getting the latest information on this?



Thanks in advance