Assuming Someone Else's Mortgage in Ontario: Is It Allowed?

A buyer sees a seller with a low interest rate and asks, can I just take over that mortgage? A family member may ask the same thing about a parent's home. The idea is common, but whether it can work depends on the lender and the terms of your mortgage, so it is worth confirming before you agree to anything.

This article explains why the lender's role matters, how assuming a mortgage differs from porting one, and what costs and checks to think about before you agree to anything.

What it means to assume a mortgage

Assuming a mortgage means a new person steps into the existing loan and takes over the payments on the same terms, instead of the seller paying the lender out when the home is sold. How the existing mortgage and the lender's security would be affected depends on your situation, so it is worth confirming with a lawyer.

For the lender, a new borrower may change how it views the loan. Whether a transfer can go ahead depends on your mortgage and your lender, so it is worth confirming the details with them.

Lender consent and the mortgage contract

Whether a mortgage can be assumed depends on what the mortgage contract says and on whether the lender agrees. Many lenders will want to assess the new borrower's income, credit and the property before approving a transfer. How this applies depends on your contract and your situation, so it is worth confirming with a lawyer.

Do not rely on a seller's word that a mortgage is assumable. Ask the seller to request the lender's position in writing, and have a lawyer read the mortgage terms before you sign an agreement of purchase and sale that depends on it.

If the seller stays on the loan after you take over payments, they may remain responsible to the lender. A lawyer can explain how that works under the specific contract.

Assuming versus porting versus paying out

These three options are often confused. They lead to very different results.

If a borrower ports to a new home that costs less than the amount of the mortgage, a prepayment penalty may still be owed.

Costs, rates and protections to check

If the mortgage is broken rather than assumed, the penalty is usually the higher of 3 months' interest on what is still owed or the interest rate differential. Federally regulated lenders must set out prepayment privileges and penalties in an information box at the start of the mortgage agreement. That box is a good place to start reading.

For a mortgage longer than five years, the borrower may pay off the principal and interest after five years from the mortgage date, plus three months' further interest in lieu of notice. That right does not apply to a mortgage given by a corporation.

If you deal with a mortgage broker, agent or brokerage in Ontario, they are licensed by FSRA under the Mortgage Brokerages, Lenders and Administrators Act, 2006, and you can check a licence on FSRA's public listing, which FSRA says is more reliable than a printed licence. You may not be protected if you deal with unlicensed people.

If the loan is a private mortgage, note that fees are often higher than for a traditional mortgage, and independent legal advice before signing is recommended.

What to do next

• Get a copy of the mortgage and read the terms on transfer, payout and penalties.
• Ask the lender, in writing, whether it will allow the transfer and on what conditions.
• Ask what the payout cost would be if the mortgage were discharged instead.
• Confirm in writing whether the seller would be released from the loan.
• If a spouse lives in the home, raise that early, because a spouse with a right of possession has the same right to notice of the lender's claim as the owner.
• Have a lawyer review everything before you waive any conditions.

Frequently asked questions