A Mortgage Assumption Canada can be a great way to buy a home without having to pay for a full price house. But you should be aware that this is not without its risks. You have to be careful in your research and choose the right mortgage provider to ensure that you get the best deal. Also, keep in mind that there are certain fees that can be associated with the transaction.
Government-backed loans
A mortgage assumption is not the only way to get a leg up in the real estate game. Fortunately, lenders like the Canada Mortgage and Housing Corporation (CMHC) are more than willing to help out the average family. For a small fee, you can borrow enough for the purchase of a new home or condo, the renovation of an existing property, or the refinancing of an existing loan. This type of financing can help keep your wallet from getting sweaty.
The cost of borrowing money from the local bank or credit union can run as high as 15% of the total cost of the loan, but CMHC can make the process a lot more palatable. To qualify for this type of funding, you must have at least a 3.5% down payment, a clean credit record, and an employment history that reflects good to excellent credit. CMHC can also provide financing for real estate purchases that are deemed unsuitable for conventional lending. In fact, some lenders will lend you money if you’re in a bad neighborhood, and even if you have a bad credit score. Buying your own home can be a major financial undertaking, but this is the ideal way to ensure a home loan that fits your budget.
A mortgage assumption is a smart move for the family that is on a tighter budget. If you have the cash to spare, you could save hundreds of dollars a month in interest payments. By all means, look for the right financing option, but be sure to compare rates before signing on the dotted line. Whether you decide to take out a traditional loan or go for a CMHC option, remember to always ask about fees and rates. You should also consider the long-term impact of a new loan on your budget.
Conventional adjustable-rate mortgages
Whether you’re planning to buy a new home or refinance your existing one, conventional adjustable-rate mortgages can be a good way to get a lower monthly payment. But it’s important to understand how they work before you make a decision.
The first year of your adjustable rate mortgage will be fixed. You’ll pay the same interest rate for the initial three to five years, which is a good deal for those who plan to stay in the home for a long time.
Once you’ve completed the fixed-rate period, your loan will be adjusted based on market conditions. Your interest rate will likely rise after that. This can affect your property taxes, homeowner’s insurance, and fluctuating insurance payments.
Several popular ARM programs are available. They include the 10-1 ARM, 3-1 ARM, 5-1 ARM, and 7-1 ARM. Depending on your credit and other factors, you can usually get a better interest rate with these ARMs. Nevertheless, they may still end up costing you more than you expected.
Many people prefer adjustable-rate mortgages when interest rates are high. When they’re low, they offer slightly lower rates during the introductory period. However, you can’t avoid paying higher rates after the introductory period.
Conventional adjustable-rate mortgages typically have rate caps. These caps limit the maximum amount you can borrow. The cap on a conventional ARM depends on federal law and your financial profile. It also depends on the lender. If your lender is unwilling to offer you a rate lower than the cap, you can often find another lender who will.
One thing to remember about ARMs is that you’ll need to continue making your monthly payments. Some ARMs can be refinanced later, but it’s generally a good idea to avoid doing so until the fixed-rate period is over.
Conventional adjustable-rate mortgages are available in a range of 10 to 40-year terms. Most conventional loans require at least a 620 credit score. Borrowers with less than 20% down will also need to pay private mortgage insurance.
For buyers who want to move within five years, a conventional adjustable-rate mortgage can be a good choice. Alternatively, homeowners who plan to live in the home for several years should consider an ARM.
Fees associated with assuming a mortgage
Assuming a mortgage is a smart move for those who don’t want to take out a second mortgage, but the fees associated with doing so can be a pain. For starters, the seller may add on some extra costs. The lender will also need to get a copy of the borrower’s credit report to make sure that the borrowers haven’t gotten into any trouble.
In some cases, the fees are minimal. However, the lender can demand repayment in full immediately. To save on these fees, buyers should do their research and use a reputable mortgage service to find out what’s required of them.
If a borrower is looking to move, or wants to leverage their existing assets to buy something bigger, assuming a mortgage is a great way to go. Of course, there are some risks, such as the loan being too small to cover the cost of the property. A lender may be willing to lend you more than the home is worth, especially if you can prove that you have a good reason for needing the extra cash.
Assuming a mortgage is not an easy task, and you will need to do your homework before you sign on the dotted line. Fortunately, the lender will make the process easier by reviewing your financial information. They should even give you a free mortgage calculator to help you out.
Although it’s not for everyone, the benefits of assuming a mortgage outweigh the downsides. You’ll have more money to spend on the other facets of buying a home. On top of that, you will not be stuck with an unfavorable interest rate. Depending on your situation, you may also be eligible for a low-interest rate loan or a more flexible loan term.
It is a good idea to do your research, because the assumable mortgage is only the first step in your quest to own the house of your dreams. Taking on a mortgage can be a daunting task, but with the right mortgage partner by your side, you can be sure that the next step in the journey will be a rewarding one.
Among many other things, David A. Grantham is a contributing author to UmassExtension West Vancouver Blo. He is a renowned expert on real estate in BC.
Born in North Vancouver, Louisiana, Dr. Grantham grew up in Lower Lonsdale. He then went on to complete his business degree at the University British Columbia. As of this writing, Grantham has completed over 100 projects, including the development of a high rise building in Vancouver.
He is a husband, father, son, brother, and friend. He was a dedicated outdoorsman and enjoyed sports such as hunting, fishing, scuba diving, and snow skiing. His wife, Alison Grantham, and their two daughters survived him. He is survived by his wife Alison Martin Grantham and two daughters.