Can You Assume a Mortgage in Alberta? A Step-by-Step Guide

Buying a home in Alberta can be expensive, especially with rising interest rates. But what if you could take over someone else’s mortgage with a lower interest rate? That’s exactly what assuming a mortgage allows you to do. However, it’s not a simple yes or no answer. There are multiple factors to consider.

In this guide, I’ll break down everything there is to know about assuming a mortgage in Alberta. We’ll cover the process, requirements, benefits, risks, legal aspects, and lender policies. Keep reading to find out if assuming a mortgage in Alberta is right for you.

What Is an Assumable Mortgage?

An assumable mortgage is a home loan that can be transferred from the seller to the buyer, keeping the same interest rate and terms. This means that if the seller locked in a low-interest rate before rates increased, the buyer could take over that mortgage and benefit from the lower cost.

Not all mortgages in Alberta are assumable. Some lenders allow it, while others don’t. Plus, buyers must still qualify based on the lender’s criteria.

How to Assume a Mortgage in Alberta: Step-by-Step

Assuming a mortgage isn’t as simple as shaking hands and taking over payments. There’s a structured process involved, and it’s important to understand each step.

Step 1: Find a Home With an Assumable Mortgage

Not all home listings specify whether the mortgage is assumable, so you may need to ask the seller directly. Here’s how to find one:

• Check real estate listings: Some sellers will mention an assumable mortgage in their property descriptions. You can view my listings here!
• Ask your real estate agent: Agents can help you find homes with assumable mortgages and negotiate with sellers.
• Network with homeowners: Some sellers may not advertise the assumption option, but they might be open to it if asked.
• Look for older fixed-rate mortgages: If the seller locked in a lower rate before recent rate hikes, they may have an attractive assumable mortgage.

Step 2: Check If the Lender Allows Assumptions

Not all lenders in Alberta permit mortgage assumptions. Here’s what to do:

• The seller should contact their lender: They need to confirm whether their mortgage can be assumed.
• Request the assumption requirements: If allowed, the lender will provide a checklist of eligibility criteria.
• Confirm if the seller remains liable: Some lenders may not release the seller from financial responsibility after the transfer.

Step 3: Get Approved by the Lender

Even if a mortgage is assumable, the lender must approve the new borrower. The qualification process is similar to applying for a new mortgage. Requirements typically include:

• A strong credit score: Most lenders require a credit score of 650 or higher to qualify.
• Stable employment and income verification: You’ll need to show pay stubs, tax returns, or other proof of income.
• A debt-to-income (DTI) ratio within the lender’s limit: Typically, your monthly debt payments (including the mortgage) should not exceed 42% of your income.
• A mortgage assumption application: Some lenders may require additional paperwork before approval.

Tip: Get pre-approved before searching for assumable mortgages. This helps speed up the process and gives you an idea of what you can afford.

Step 4: Sign the Necessary Paperwork

Once the lender approves you, the legal paperwork begins. Here’s what to expect:

• Mortgage Assumption Agreement: This is the official document transferring responsibility from the seller to the buyer.
• Seller Release (if applicable): The seller may need to sign additional paperwork to remove them from liability.
• Title transfer documents: A real estate lawyer may need to handle the transfer of the property’s title.
• Insurance verification: The lender may require proof of homeowners insurance before finalizing the assumption.

Important: If the seller is not officially released from liability, they could still be responsible if the new buyer defaults on payments. Always clarify this with the lender before signing.

Step 5: Pay Any Required Fees

There are some costs involved when assuming a mortgage, but they are often lower than closing costs for a new mortgage. Fees may include:

• Lender’s Assumption Fee: Can range from $500 to $1,500, depending on the lender.
• Legal Fees: Hiring a real estate lawyer for paperwork and title transfer can cost $1,000 to $2,500.
• Down Payment (if applicable): If the home’s value is higher than the remaining mortgage balance, you may need to pay the difference upfront.
• Appraisal Fee (if required by the lender): Some lenders require a home appraisal, which typically costs $300 to $600.

Tip: Ask the seller if they are willing to cover part of the assumption fees to make the deal more attractive.

Step 6: Finalize the Transfer

After all approvals, paperwork, and fees are handled, the final step is taking ownership of the mortgage. Here’s what happens:

• You begin making payments: The lender will officially transfer the mortgage to your name, and your first payment will be due according to the loan terms.
• Ownership is transferred: Your name will be recorded on the property title as the new owner.
• Insurance and taxes are updated: Make sure your homeowners insurance and property tax information reflect the change in ownership.

Following these steps ensures a smooth mortgage assumption process. If you’re unsure about any part of the process, contact me here.

Legal Considerations and Seller Risks

Selling a home with an assumable mortgage can be a great way to attract buyers, but it comes with legal risks. The biggest concern is that the seller may remain financially responsible for the mortgage even after the assumption. If the buyer defaults on payments, the lender could still pursue the original homeowner for missed payments or even foreclosure.

To protect yourself as a seller, here’s what you need to do:

1. Ensure the Lender Releases You from Liability

• Some lenders allow a formal release of liability, which removes the seller’s financial obligation once the mortgage is assumed.
• This release is not automatic, you must request it and ensure it’s included in the assumption agreement.
• Without this release, the lender could still hold you responsible if the new borrower fails to make payments.

2. Work With a Real Estate Lawyer

• A real estate lawyer can review the mortgage assumption agreement and confirm that you are legally removed from all obligations.
• They can also check for hidden clauses that might leave you responsible for future issues.
• If the lender does not offer a liability release, a lawyer can help negotiate alternative legal protections.

3. Verify the Buyer’s Financial Stability

• Even if the lender approves the buyer, do your own due diligence to ensure they are financially responsible.
• Request proof of income, credit history, and employment stability before proceeding.
• Consider including a condition in the agreement that requires the buyer to refinance the mortgage after a set period.

4. Understand the Tax Implications

• If you sell a property with an assumable mortgage and it has appreciated in value, you may owe capital gains tax.
• Rental or investment properties may have additional tax consequences, so consult with a tax professional before proceeding.

Do All Lenders Allow Mortgage Assumptions?

Lender policies on assumable mortgages vary. Some major banks and lenders in Alberta allow assumptions, but others do not. Here’s a quick breakdown:

• CMHC-Insured Mortgages: Most Canada Mortgage and Housing Corporation (CMHC) insured mortgages are assumable with lender approval. 
• Big Banks (RBC, TD, Scotiabank, etc.): Policies vary, so it’s best to check directly with the bank. 
• Credit Unions and Private Lenders: Some may allow assumptions, but they may have additional fees or stricter criteria.

If you’re considering assuming a mortgage, it’s best to contact the lender early in the process to confirm eligibility.

Tax Implications of Assuming a Mortgage in Alberta

There are some tax considerations when assuming a mortgage:

• Property Transfer Tax: The good news? Alberta does not have a land transfer tax like some other provinces.
• Capital Gains for Sellers: If the seller is an investor, they might face capital gains tax depending on the property’s appreciation.
• GST Considerations: If the property is a new build or rental, GST might apply to the transaction.

Speaking with a tax professional can help clarify any potential tax consequences.

Pros and Cons of Assuming a Mortgage in Alberta

Pros:

• Potentially lower interest rates than current market rates
• Fewer closing costs compared to a new mortgage
• Faster approval process since the mortgage terms are already set
• No need for a new property appraisal in many cases
• Can be a great option in a high-interest-rate environment

Cons:

• The lender must approve the buyer, which isn’t guaranteed
• The seller may remain liable if the lender doesn’t release them
• The buyer may need a large upfront payment if the home’s value exceeds the mortgage balance
• Some lenders charge assumption fees, adding to costs
• Limited availability since not all mortgages are assumable

Is Assuming a Mortgage Right for You?

If you’re a buyer looking for a way to secure a lower interest rate and avoid some closing costs, assuming a mortgage in Alberta can be a smart move. 

However, you need to: 

• Ensure the lender allows assumptions. 
• Meet the qualification criteria. 
• Understand the risks involved.

For sellers, it’s crucial to ensure you’re released from liability before transferring the mortgage.

Final Thoughts

Assumable mortgages can be a hidden gem in Alberta’s real estate market. While not all mortgages are assumable, those that are can offer significant benefits to buyers and sellers alike. If you’re considering assuming a mortgage, start by working with a knowledgeable real estate agent and consulting with the lender.

For more details, check out Rocket Mortgage’s explanation of mortgage assumptions.

FAQ: Assuming A Mortgage in Alberta

Do you need a down payment to take over a mortgage?

It depends on the remaining balance of the mortgage and the home’s value. If the mortgage amount covers the full purchase price, you may not need a down payment. However, if the home’s value is higher than the remaining mortgage, the buyer must cover the difference, either with a down payment or other financing.

What are the requirements for an assumable mortgage?

To assume a mortgage, the buyer must meet the lender’s qualification criteria, which typically include:

• A strong credit score (usually 650+).
• Proof of stable income and employment.
• A debt-to-income ratio within the lender’s limits.
• Approval from the mortgage lender.
• Some lenders may also require assumption fees or additional paperwork.

Can a mortgage be transferred to another person in Canada?

Yes, but only if the mortgage is assumable and the lender approves the transfer. The new borrower must qualify under the lender’s terms, similar to applying for a new mortgage. If the lender does not allow assumptions, the only option is refinancing under the new owner’s name.

What are the risks of letting someone assume your mortgage?

The biggest risk is remaining liable for the loan if the lender does not release you from responsibility. If the new owner stops making payments, the lender could still hold you accountable. To avoid this, ensure you get a formal release of liability from the lender before transferring the mortgage.