Robert May, Lethbridge Realtor & Mortgage broker
MYTH – Assumable Mortgages Are No Longer Available in Alberta
False But qualification may be required.
A mortgage in Alberta is a covenant that attaches itself to the land and stays there, even if the ownership
of the land changes. In this sense, mortgages are assumable. Albertas Law of Property Act makes the province unique from the rest of Canada in that the lenders recourse against the defaulting individual is limited to high ratio mortgages. However, most mortgages in Alberta, whether conventional or highratio, contain a due on sale clause stating that if the mortgagor transfers the property to a new owner, the lender has the right to require the new owner to qualify or the right to declare the mortgage due in full. There is nothing in Alberta legislation that prohibits lending institutions from enforcing this clause, although a sound reason for rejecting a buyer (i.e. poor credit, adverse terms of sale, mortgage in default, indications of mortgage fraud, etc.) is required.
Whether or not the buyer has adequate financing or is willing to engage
in legal proceedings to force the bank to allow the assumption to proceed
is another story. Robert May has significant first hand experience both assuming mortgages and allowing mortgages to be assumed. “As long as you know what you are doing and have expert advice, assumable mortgages can be a great opportunity.” according to Lethbridge real estate expert Robert May of LethbridgeLoans.com
There are several risks involved with mortgage assumption for both the
buyer and the seller. The borrower (seller) and anyone who assumes the
mortgage, are personally liable for any deficiency suffered by the bank,
should default occur on a high ratio mortgage. Another problem is that
the principal balance of the assumed mortgage displayed in the Finance Schedule and the Purchase Contract is only an approximate figure and may be understated. Buyers should also be wary of assuming cash-back mortgages which typically have higher interest rates and penalties for pay outs prior to maturity. Cash-back mortgages offer a compelling reason for the lender to enforce a due on sale clause, due to the large profits that can result. “Do not allow your mortgage to be assumed without proper expert advice”, says Lethbridge Real Estate expert Robert May.
If you are seeking new mortgage financing, Lethbridge mortgage and real estate expert Robert May of Verico Canada First Mortgage is available to help. Contact him directly at www.LethbridgeRealEstateBlog.com for personalized and confidential service.