Assumable Mortgages in Calgary

[I_H8_Crawford]

Was having a discussion with my g/f who is looking at buying a place, and we have noticed that there are some assumable mortgages around Calgary.

My question to the learned CP posters is why? Why would someone choose to just pass their mortgage on to someone else when they can probably still sell their place for at the very worst break even?

Just curious to see what the method is behind this, thanks!

[Mike Oxlong]

These people are still going to make money on the sale if you assume their mortgage.

Here is an example with very easy math...

Say you bought a house last year for $100,000. With appreciation this year it is worth $150,000. Over the course of the year say you paid the mortgage down by $5000.

So now the house is worth $150,000 and the mortgage is only $95,000. When you assume the mortgage they would want $55,000 from you to assume the mortgage.

It is a bit risky to allow someone to assume your mortgage as you are technically still liable if they default. However sometimes it makes it easier to sell. For people who can't qualify for a mortgage assuming is sometimes their only option. However if the bank won't qualify them do you want to take the risk?

Alberta is the only province in Canada that allows assumable mortgages.

[Claeren]

Because they cannot actually sell it for break even?

Remember that listings on MLS are exploding right now, surpassing a 1993 high (1993 was a BAD year BTW), but at the same time people are not willing (or able) to drop prices to match the evaporating market. So just because people are still listing at say $400k does not mean ANY of them are selling at $400k.


Add to that, that if they are investors they may have multipile properties at once and if they need to pay mortgages on lots of properties they may be having a cash flow crunch that is more costly to them then the loss they will take on the property itself.



My guesses...


Claeren.

PS - I assumed you meant assumable with no more money due, i agree with Mike if they want additonal money.

[ken0042]

I would say the risk is small right now.

Advantages:
- No penalty for closing the mortgage early.
- Large cash down on most is very much worth the risk for the seller. IIRC one of the terms of me assuming the mortgage was that I wouldn't have gotten any money back if I forced forclosure in the first year or 6 months.
- More buyers available. (ie I wouldn;t have bought my current house if it wasn't assumable.)

[Bend it like Bourgeois]

You can also get an interest premium, I'm told.

So if you have an appealing rate and terms someone else may pay higher than market to buy the mortgage, not just the property.