Mortgage Assumption Agreement in Alberta: What You Need to Know
For some homeowners in Alberta, a mortgage assumption agreement can be a viable option to transfer ownership of their property to another party. This agreement allows the new owner to take over the payments on the existing mortgage loan instead of having to obtain a new loan. However, before entering into this agreement, it is important to understand the legal implications and requirements involved.
What is a Mortgage Assumption Agreement?
A mortgage assumption agreement is a legal contract between the original borrower and a new borrower, who agrees to assume the existing mortgage loan and make future payments. This allows the original borrower to transfer ownership of the property without paying off the remaining balance of the mortgage. The new borrower must also qualify for the mortgage loan based on their financial history and creditworthiness.
In Alberta, the mortgage assumption agreement must be approved by the lender before it can be executed. This is because the lender still holds the legal right to the property and wants to ensure that the new borrower is financially capable of making the payments.
Pros and Cons of a Mortgage Assumption Agreement
One of the advantages of a mortgage assumption agreement is that it can be a faster and more cost-effective way to transfer the ownership of a property. The new owner does not have to go through the process of obtaining a new loan, which can take time and involve additional fees. Additionally, the original borrower may be able to avoid prepayment penalties or other fees associated with paying off the mortgage early.
However, there are also potential drawbacks to consider. The new borrower is taking on the responsibility of the existing mortgage loan, which means they are also responsible for any past due payments or other liabilities. If the original borrower defaults on the loan, this could negatively impact the new borrower`s credit.
It is also important to note that not all mortgage loans are assumable. If the original loan has a due-on-sale clause, it may not be possible to transfer ownership without paying off the remaining balance of the loan. Additionally, the lender may charge a fee for approving the assumption agreement.
Conclusion
A mortgage assumption agreement can be a useful tool for homeowners in Alberta who want to transfer ownership of their property without paying off the remaining mortgage balance. However, it is important to understand the legal requirements and potential risks involved before entering into such an agreement. It is recommended that you consult with a real estate lawyer or mortgage specialist to ensure that you fully understand the terms of the agreement and your legal obligations as a borrower.