Assumable Mortgage

A frequently asked question in the mortgage business is whether a mortgage can be transferred with the sale of a property. In fact, people actually want to know if the buyer of the property is also entitled to take possession of the mortgage too. In other words, the enquiry is about whether a mortgage is assumable or capable of being assumed. In this case, it must be remembered that as the lender controls the mortgage and the purchaser of the property will be assuming or taking over the accountability for the mortgage balance due, the issue has to do with capability of being assumed and not transferred.

Incidentally, in the past, the majority of the mortgages mentioned little or remained silent on the issue of them being taken over by the new property title-holders. That these mortgages said nothing about being assumed by the new proprietor meant that all the mortgages were in fact assumable. Even today when a mortgage contract remains silent on the issue of it being assumable, the law stipulates that when the property is sold the mortgage can be taken over by the new owner. It is worthwhile to mention here that saving a prevalent mortgage agreement mentions anything specific about it being assumable, any new buyer of the property can take over the mortgage liabilities even if he or she is not eligible for the credit. In fact, in this case the new owner even does not require the sanction of the lender.

Basically, there are only three different categories of assumable clauses or sections that may be included in a mortgage agreement and they are as below:

Completely (Fully) assumable mortgage
As mentioned earlier, if an existing mortgage agreement is silent on the issue of it being assumable, any buyer of the property is naturally entitled to take over the mortgage. The new owner of the property does not require facing any eligibility or authorization procedure. They don't even need to get the approval of the lender.
Completely (Fully) non-assumable mortgage
A mortgage can be termed as completely non-assumable if it contains any clause or section that stipulates the absolute payment of all mortgage arrears and liabilities before the property can be sold, transferred or change of ownership. Owing to this specific clause or section also known as 'due-on-sale', no buyer of that particular property is entitled to take the mortgage.
Restricted (Limited) assumable mortgage
Currently, most mortgages are restricted or limited assumable mortgages, which are also identified as 'assumable with approval' or 'due-on-sale at lender's option'. In fact, these days almost all lenders include this clause in the mortgage contracts with a view to curb the mortgage being transferred to new property owners without their approval. In this instance, the lender normally has two options when a mortgaged property is sold. The lenders may either permit the new owner of the property to take over the mortgage liabilities following their approval or ask the borrowers or the sellers of the properties to clear the entire mortgage liability before they sell their assets. If the lender decides to allow the new owner of the property to take over the mortgage liabilities, the buyer will have to go through the same eligibility process as was required by the seller of the property for a new mortgage. In this case, the lender will also conduct a credit check of the new owner before approving the take over of the mortgage debt.

In the instance of a mortgage being assumable, it is important to observe if a lender is acting 'sensibly' while coming to a decision to give his sanction to the property buyer to take over the mortgage liabilities on that particular asset. If he doesn't act 'reasonably' or denies his permission, it is impossible to assume the mortgage debt of the property. In this case, the creditor may without rhyme or reason deny permission to the buyer to assume the mortgage regardless of his or her financial eligibility. The lender may further 'call' all the mortgages on sold properties and put the mortgage amount back to the square one with a view to obtain higher returns on his investment.

On the other hand, there is hardly any clause or section restricting a buyer from taking over the mortgage liabilities when a mortgager sells his or her property and also concedes to withdraw the mortgage in the proposal. Hence, it is important to note that most VTB (vendor take back) mortgages are naturally and completely assumable by any buyer even without seek the approval of the lender. It may be mentioned here that a VTB mortgage is one where the person who sells you the house lends you the money to buy the house.

Practically, all borrowers or mortgagors prefer mortgages that are fully assumable credits. The reason behind this is not difficult to gauge as at a time while the interest charges are towering, a fully assumable mortgage at a lower market interest rate can turn out to be an ideal as well as important aspect to promote the sale of a property or house. Hence, it is advisable that if you cannot organize or get a fully assumable credit, endeavor to obtain a limited or restricted assumable mortgage as it is essential to have a 'rationality' clause or section in the mortgage contract that you sign.

Many people often want to know how mortgages are assumed or they are taken over from the property seller by the property buyer. In most cases of property resale, normally the new buyer closes the assumable mortgage arrangement after seeking the necessary approval from the lender. As mentioned earlier, in many cases the buyer even does not require the approval of the lender when the mortgage is fully assumable. Once the buyer completes the contract, registers the legal document and makes the future mortgage payments of the property, it may be said that he or she has completely conceded to assume or take over the mortgage.

However, all new home dealing is conducted in a different manner. In such cases, the buyer is asked to enter into an official mortgage assumption contract that establishes a direct legal binding between the buyer and lender. It is possible that such an agreement might not have prevailed between the property seller and the lender. In fact, the new agreement between the buyer and the lender usually turns out to be a mortgage assumption (transfer or take over) and amending (modification) contract by which both the buyer and the lender consent on making specific changes in the mortgage conditions as listed in the document granting the right to the property ownership. Such an agreement becomes necessary if the buyer assumes or takes over a lesser principal than what is listed in the original property ownership document or if the imbursements or interest fees are altered. Such an agreement is also necessary if both the parties - the buyer and the lender - agree to change the payment schedule or dates. Currently, such assumption contracts are being used by a section of the lenders in the case of resale deals also.

It is advisable not to arrange or plan a mortgage that can be assumed or taken over by anyone other than you as there is no certainty that any person willing to buy your property will also agree to assume or take over the mortgage liabilities. Whether the unpaid principal amount is very less or too high, any company or family loan may be obtainable at your chosen interest rate or the buyer may agree to pay you in cash for the property, in either of these situations you will be a looser trapped to pay a fine for terminating the mortgage before its due date.

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