Some Sellers believe that allowing and marketing for Buyers to assume their mortgage will increase the salability of their property. The problem with this theory is that it takes money to buy and the money must come from somewhere. Below are Kelly Grant's Top Risks to Consider if Allowing your Mortgage to be Assumed:
(1). Banks often require that high-ratio mortgages have Seller accept personal liability for default (with the Seller remaining on title until the mortgage is paid out).
(2). Regardless of a Buyer's credit rating and other risks, many banks will often refuse to allow Buyers to assume the mortgage.
(3). Assumable mortgage deals must be conditional upon lender acceptance of the Buyer (i.e. can freeze the Buyer and delay removal of conditions and a firm sale).
(4). Assumable mortgage can indicate a sign of Seller desperation (i.e. particularly if there is a large mortgage on title) that attracts low-ball offers from investors and buyers without money and / or ability to secure financing.
(5). Saving some money on the payout penalty expended vs. additional time, effort, personal risk, and legal liability expended to get your mortgage assumed, including if your home is tied up pending for weeks with a Buyer who cannot get their own financing and then backs out once rejected for assuming the mortgage.
(6). Complicated assumable mortgage listing advertising can potentially confuse and / or turn away prospective Buyers who may not immediately understand that the assumed mortgage offered is only voluntary.
In summary, Sellers should not disrupt their REALTOR’S® normal marketing of a home by offering assumption of mortgage since the potential increase in 'low-yield Buyers' is in most cases not worth the Seller's extra time, effort, and risks of dealing with the assumed mortgage. Plus with interest rates often at very competitive levels, Buyers can achieve their own financing at a low rate from their mortgage broker - as such, the Seller’s assumable mortgage will usually be ignored.
[Article written and ©2009, ©2020 by Kelly Grant, M.Eng., ABR, NCSO, P.Eng. - REALTOR® at MaxWell POLARIS in Edmonton, AB]
Disclaimer: for those readers not currently represented by another licensed REALTOR®, to obtain more information on this topic and / or if you will be selling or buying in the Greater Edmonton Area, call Kelly at 780-414-6100 (pager) or send Kelly an email to SOLD@KellyGrant.ca to schedule a confidential appointment.