Mortgage Calgary

I received another response about assumable mortgages in Alberta that I just had to post:

I am a single parent of 3 children, I purchased my first house in a small town by Red Deer, did some extensive renovations and sold it for $30,000 more than I paid for it.

Assumables are what you make them to be. I wish they had them in BC, they are not just for people with bad credit.
In a follow up email she wrote:

I wrote [my story] because I want people to understand assumables are not just for people that have had a run of bad luck. Some times with Banks it is the only way someone like myself could own a home. I would like to let other women know, you can own a house, because there is no better feeling in the world to own your own home.

Stories like these serve as great inspirations to the many people in Alberta who do not own their own home. I thank the author for sharing her touching story.

My most popular posts on Mortgage Calgary are consistently about assuming mortgages. There doesn’t seem to be a lot of good information about assumables – I assume because the banks and mortgage lenders aren’t so hot on them.

Looking for first-person stories of people who had assumed mortgages in Alberta, I put out a call online:

Wanted: Your experience assuming a mortgage
I am looking to hear buyer and seller experiences in mortgage assumptions. If you are willing to share your experience with assumable mortgages – drop me an email.

I have posted the responses below, with personal details withheld.

“Not much of an experience to discuss, buyer paid cash to mortgage, i transferred title and mortgage, done deal.”

“Every single home that i sold i made it an assumable mortgage. I’ve had no problems so far yet. it makes selling the home more easier. Now when i look for properties to buy i look under the assumable section that my Realtor set up for me.”

I followed up that response with some questions, curious about the reaction to an assumable the other parties involved had (banks, brokers, lawyers):

“My lawyer has not had any problems with assumable properties. The reason why I let people assume my mortgage is because its easier to sell the property, not every one can qualify for a mortgage of lets say 3500000, but they have the money to put down as a deposit. In other words you can say you are acting as the bank. It’s like investing money in rsp. You have the ones that grow very little in interest with no worrying about the market. or you can earn lots of interest but there’s risk involved.”

Assumable Mortgage Can Go Bad

I received this word of warning about assumable mortgages through my inbox:

“The person who was granted and approved for the mortgage will be responsible for the payments of this mortgage for 1 year after selling their house. This means a person with no down payment can walk in, make no payments and live for free. You won’t even know the mortgage is delinquent till about 3 months after no payments are made; then your credit is screwed up, it will take a lot of legal wrangling to get the new owners out, all the while no doubt your place will be a disaster.

People who have a good size down payment are different; they have something to lose, beside the fact they have been able to save money, a sign of better financial ability.

Just had someone try this on me (no down assumable) but I have no mortgage on my property, so they tried rent to own. In nearly 5 months time they owed almost 4 months rent!!! Imagine they get the no down assumable! Could be a scam to sit a year for free, or people just unable to make payments; either way you can be really out of luck.”

Have you bought or sold using an assumable mortgage? If you have any experiences you’d like to share, please leave a comment.

More good stuff from www.reddeeraltalaw.com:

When people take out a five year mortgage the last thing they think about is paying it out before the five years are up. Very often that is exactly what happens. Not because they suddenly become independently wealthy by winning the lottery, but because they move. Our society is much more mobile than generations past.

A mortgage is a contract with a financial institution for a certain interest rate for a certain period of time. Most often it will involve a fixed rate of interest for a fixed time. As a consumer we like the certainty of knowing that we will not have to increase our house payment because interest rates go up. We therefore want a fixed rate of interest. The financial institutions also like to know that they will have a fixed income on their investment. If the consumer has no risk of higher payments if interest rates go up, the financial institution should equally have no risk of receiving less if the interest rate goes down. If interest rates go down the consumer cannot take advantage by getting a new mortgage at the low rate and paying out the old mortgage.

If a consumer breaches their end of the deal by paying out the mortgage early or by paying down the principal faster than agreed the financial institution will lose money and will want to be paid the lost amount. Each financial institution will have certain allowable early payment provisions in their mortgage contract. If the consumer wants to pay more than is permitted it creates what is referred to as a prepayment penalty. This is really not so much a penalty as just recovery by the financial institution of the damages they have suffered by reason of the consumer breaching the contract.

Most financial institutions will permit a consumer to increase their regular payment and to pay a percentage of the original principal of the mortgage each year without penalty. The percentage varies with each institution and the privilege can be cumulative over the year or can be limited to a one-time payment during the year. Also most institutions will permit a consumer to port a mortgage. Porting a mortgage means, that if you borrow from the financial institution on a different property at the same interest rate for the time remaining on your mortgage, they do not charge the penalties for discharging the first mortgage.

Payment of all the interest that would be owing to the end of the term of a mortgage on early repayment would over compensate the financial institution. The loss to the financial institution is based on the loss resulting from having to lend the money out at a lower rate to someone else. Financial institutions cannot lend an infinite amount of money but are limited by regulations tying the amount lent to their reserves.

If you pay out your mortgage prior to its maturity date the loss to the financial institution will be the interest differential between what you would have paid and what someone else will pay the bank and will be at a minimum an amount to compensate the financial institution for the administrative cost of having to process a new mortgage. The minimum is usually three months interest but this can vary.

Repayment of cash-back on early payment of the mortgage in addition to prepayment penalties is unjustified. The calculation of prepayment penalties puts the financial institution back where they would have been if the consumer carried the mortgage full term, including the benefit of charging a higher interest rate because of the cash-back. However, most mortgage contracts include the repayment of a portion of the cash-back in the event of early repayment.

Payout penalties can be justified as being fair, but because consumers do not think about payout penalties when they first negotiate the terms of a mortgage the penalties seem harsh when it comes time to pay them.

Seventy percent of Canadians don’t shop around when it comes to around to mortgage renewal time. They simply renew their mortgage with their current lender. This means you lose out on a chance to reduce your interest rate and you may be stuck with a mortgage that might not be optimal for your situation.

Renewing your mortgage gives you a chance to start over. Your existing mortgage is discharged and you enter a new one, one with a better interest rate or better lump-sum repayment terms. Here are some tips that can help you when it’s time to renew your mortgage.

Don’t wait – Start to research the mortgage market three or four months in advance of your mortgage renewal date. This gives you time to research the market to make the best decision. If you wait until the bank mails their mortgage renewal notice, you won’t have the time you need to make the best choice.

Pay down the principal – When your mortgage is up for renewal, it is a great time to put as much as you can afford towards the principle. Since your renewed mortgage is a brand new one, paying down the principle will help reduce the interest you pay over time.

Negotiate the fees – There is a discharge fee of $150 to $300 charged by your existing mortgage lender for switching your mortgage over to a new lender. If you ask for the lender to waive this fee, they often will. Failing that, your new lender will often cover the fees associated with switching. Your new lender might also ding you with some fees, including administrative and legal.

Make sure it is worth it – Not only are there fees involved, but renewing your mortgage with a new lender can be a headache. Since it is a new mortgage, you will have to jump through the usual hoops, proving income and getting your credit checked. Be sure to price out exactly what your renewal will cost you – and save you.