Could your Mortgage be an Asset?

That massive amount of debt you call a mortgage could be an “asset” in the near future.
It sounds far-fetched but imagine a scenario where you sign a 10-year fixed rate mortgage at 3.89% and five years from now rates have climbed to 6% and variable rates are not much lower.
You decide it’s time to sell. Someone buying that property would very likely be interested in taking over your payments — they might even pay more for your home knowing how much they’ll save on interest.
Mortgage assumptions, as they are called, have virtually died in this time of falling interest rates. Why would you possibly want to take over somebody’s existing mortgage when you can get a lower rate today?
“I remember the days clearly,” says Glenn McQueenie, broker/owner of Keller Williams Referred Realty, about when the terms of your mortgage were a key part of any home purchase. “In the early 1990s a lot of people had 15%, 14%, 13% mortgages.”

A number of different scenarios played out back then. Often the sellers would buy down the mortgage rate so the buyer could qualify for financing — something one bank official said they are unlikely to approve in this day and age.

Then there were the homeowners with a mortgage as low as 9% — try not to laugh. Those people had something to sell. “If there were two properties side by side and one had assumable financing at 9% compared to one at 13%, there would be a bigger draw to the 9%,” says Mr. McQueenie. “We didn’t have a lot of multiple offers back then, so this would get you more showings.”
The realtor expects we are going to see more people willing to assume mortgages and working that into any deal is going to make the negotiating skills of agents more important. “These have been more low-skilled times for realtors,” he says.
One of the factors that could drive this issue is the sudden influx of people who have been taking on a 10-year mortgage. In the past, consumers have shown almost no interest with the Canadian Association of Accredited Mortgage Professionals saying the market for 10 year products is less than 1% of all mortgages.
But people in the industry say that doesn’t take into account the last six months as the 10-year mortgage rate dropped below 4% and banks and discounters started promoting the offering.
“We have more clients going into the 10-year than ever,” says Paul Roberts, a mortgage broker with The Roberts Group, adding one advantage of the 10-year is consumers only have to pay a penalty of three months interest to get out of the mortgage after the five-year anniversary.
One key in signing any mortgage is whether it can be assumed by someone else or is portable should you want to keep it when you buy another property. Usually there are some fees of maybe a few hundred dollars with transfers.

“They key thing is whoever is taking over the mortgage, you want the bank to approve them,” says Ms. Roberts, noting you do not want to be liable if the person taking over your payments defaults. “You have to make sure you are removed from responsibility.”
She says there is little doubt that if rates go up, a low mortgage will have some sort of perceived value. “Say you had $300,000 mortgage and two [percentage points difference] every year, that’s $6,000. If you have five years left, that’s $30,000,” says Mr. Roberts, noting you not be able to sell the house for $30,000 more because it would not be appraised that high.
Farhaneh Haque, director of mortgage advice and real estate-secured lending at Toronto-Dominion Bank, says most fixed rate mortgages are assumable or portable while variable rate mortgages and home equity lines of credit are not.
“Previously mortgage assumptions were attractive because you could sell your property and your mortgage with it,” says Ms. Haque. “But the person has to assume the mortgage exactly as the terms are [written]. It’s one of the reasons mortgage ports are more popular. You have to remember if you are selling, you are likely buying another property. If you have an attractive rate and you are buying another property, you want to bring your mortgage with you.”
Either way, if rates go up dramatically and you are sitting 200 basis points below the prevailing market rate, you do have something of value even if it is debt.
“If you have a 10-year or five year [mortgage], within two or three years this will be an asset because they are historic lows. Rates will be higher, we now that, the only question is by how much,” says Benjamin Tal, deputy chief economist of CIBC World Markets.
For consumers locking into long-term mortgages, the higher rates go the more that loan may start to look like an asset.