Is assuming a mortgage an affordable way into the housing market? What to know

Mortgage renewal can cause a lot of questions to surface, Jennifer Palma speaks with Angela Calla, a mortgage broker who offers tips on how to find the best rate for your renewal. – Apr 7, 2024, assuming a mortgage from a seller holding onto a lower rate can be an affordable way to skirt today’s sizeable borrowing costs.

She tells Global News that her client was set to hit the market in the fall, but their pricing hopes were dashed when a nearby comparable unit sold for “significantly lower” than what the seller had in mind.This came as mortgage rates were hitting a recent peak, which Rugala says meant buyers were either looking for a great deal or were willing to wait until interest rates started to fall.

Victor Tran, broker with True North Mortgage and the mortgage and real estate expert at Rates.ca, tells Global News that assuming a mortgage can “absolutely” be a more affordable way for a buyer to get into the housing market when the circumstances align to get such a deal done. Some buyers might find relief in assuming a mortgage today because it could allow them to more easily meet the minimum qualifying rate, otherwise known as the mortgage stress test, Tran says.The stress test sees buyers qualify to make payments on a mortgage at either 5.25 per cent or the contract rate plus two per cent, whichever is higher. In today’s market, most buyers are qualifying at around 7.5 per cent, Tran says.

Tran notes that sellers can also skirt the penalty for breaking their mortgage if a buyer is willing to take over the loan. But he says that in today’s market, paying three months’ interest to break a mortgage is usually preferable for sellers who want a “clean slate” after the sale of their home.That’s because even after a home is sold and the buyer assumes the mortgage, the seller might not be fully off the hook.

“Sellers often don’t want to be liable for something they have no control over,” he says. “So assumptions are actually not very common.”

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