When you assume a mortgage, you take over the homeowner's mortgage from the current lender at the homeowner's existing interest rate. Assumable mortgages are attractive if the current interest rates are higher than the rates in the assumable mortgage. According to Byron Nelson and Brenda Weatherby of the Calgary law firm McGuigan Nelson LLP, the Alberta is the only province to allow assumable mortgages without the buyer personally qualifying, but that's not guaranteed. Assuming a mortgage may still require you to qualify for a loan. If the home increased in value since the signing of the original mortgage, you will have to pay that difference to the sellers in order to assume the mortgage.
Search for homes with assumable mortgages. A real estate associate is a good resource for finding these properties. In 1996, regulation of the real estate industry was shifted from the Alberta government to the Real Estate Council of Alberta (RECA). The RECA website provides a search engine to help you find a real estate associate with a license in good standing. You can find a link in the Resources section.
Calculate the amount you may have to pay to assume the mortgage by subtracting the selling price from the homeowner’s mortgage balance. For example, if the home has increased in value and the difference between the selling price and the homeowner’s mortgage is $80,000 -- that will be your cost to assume the mortgage.
This amount will need to be available in cash or financed, and if financed, must be less than 75 percent of the appraised value of the home. In Alberta, if the financed amount is more than 75 percent of the appraised value, the mortgage is a high-ratio mortgage. The Law Society of Alberta recommends that a seller does not allow his mortgage to be assumed in these cases.
Consult with a lawyer or real estate associate to draw up a conditional offer for the home. The offer to purchase a home should include any conditions that must be met before the offer is finalized. Include in your conditions the request for an official statement from the financial lender confirming that the mortgage is assumable. The lender may require identification documents from you, such as your Social Insurance Number, before providing this statement.
Sign a mortgage assumption agreement with the original homeowner and the original mortgage lender. This is Alberta's legal document requiring you to assume responsibility for the mortgage from the original homeowner. The lender may require a processing fee for this agreement and your lawyer will register an assumption of mortgage caveat with Alberta Registries Land Titles.
If the lender does not approve your assumption of the mortgage, it is possible to apply to the Alberta courts to have the decision reviewed. Your lawyer will be able to provide more information on this process.
The offer to purchase is legally binding and if you change your mind, you will lose your deposit. Having conditions in the offer provides legitimate reasons to back out. Follow the recommendations of Service Alberta and be sure to make your offer conditional upon assumption of the mortgage.