Products and terms
Assumability
A feature that lets a qualified buyer take over your existing mortgage at your rate, instead of arranging their own.
An assumable mortgage can be transferred to the buyer of your home, who takes on the balance, the rate and the remaining term. The buyer still has to qualify and the lender has to approve the assumption, so it doesn't get anyone around underwriting.
Assumability is worth little when rates are low and a lot when they're high. A buyer who can assume a 2.4% mortgage signed in 2021 is inheriting an asset, and a seller with that mortgage has a strong selling point.
Two cautions. First, unless the lender releases you in writing, you may still be liable for the debt after the sale, so ask for a release of covenant. Second, many low-rate no-frills products aren't assumable. It's one of the features lenders remove to offer the lower rate.
Check the assumability clause when you sign the mortgage. By the time you list the house, it's too late to change it.
Related terms
Portability
A feature that lets you move your existing mortgage, rate and term to a new property instead of breaking it.
No-frills mortgage
A lower-rate product with less flexibility, often including a bona-fide-sale clause that means the only early exit is selling the house.
Prepayment penalty
The charge for paying off a closed mortgage early: 3 months of interest on a variable, or the greater of that and the IRD on a fixed.
This definition describes how the term is used in Canadian residential mortgage lending. It’s general information, not advice on your file. Rules, thresholds and rates change. Where a figure is quoted, it’s current as of the date shown on the related guide.
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