If you're considering a resale home, it's possible you could be presented with the option to assume a seller's mortgage on the home. This might be something you want to consider if the seller's mortgage carries a lower interest rate than what's currently available.
How does an assumable mortgage work?
You can only assume a mortgage if the seller chooses not to take the mortgage with them to a new home. Learn about portable mortgages.
You must meet the lender's credit criteria.
You will take responsibility for paying the seller's mortgage balance with the same interest rate and expiry date.
If you need more funds than the seller's mortgage offers, you may be able to finance the balance at current rates and at a term that matches the expiry date of the existing mortgage (subject to meeting the lender's criteria). From the balances and interest rates of the two loans, the lender will calculate a "weighted" interest rate for the full financed amount.
In most jurisdictions, when you assume a mortgage, you relieve the seller of all further responsibility for the loan. In some provinces, however, the seller's name might remain on the mortgage documentation until it is fully paid. This could be a concern for the seller-if you were to default on payments, the seller could be held responsible.
Deciding whether to assume a seller's mortgage is a decision you should consider carefully. For guidance, talk to an RBC Mortgage Specialist.
