MORTGAGE OPTIONS

Assuming an Existing Mortgage

You take over the vendors mortgage as part of the price you pay for the house. Assuming an existing mortgage is quick and saves you money on the usual mortgage arrangement fees, such as appraisals and legal fees. When you assume a mortgage, you don’t have to arrange financing from another lender and the rate on an existing mortgage may be lower than the prevailing market rate. If not, you may have to qualify with a lender first. Vendor Take Back (VTB) Mortgage This means the vendor lends you the money to purchase the home. It’s basically a second mortgage. For example, on a home that costs $150,000, if the vendor has an existing mortgage of $70,000 that you can assume and you have $40,000 for a down payment, the vendor may lend you the outstanding $40,000, which you pay back monthly.

Some vendors will sell this mortgage to a mortgage broker instead of holding it themselves. Interest Rate Buy Down A vendor — usually a new-home builder — pays the lender a lump sum to lower the mortgage interest rate by up to 3% over a fixed term, usually one to two years. A payment of $2,000-$3,000 reduces your mortgage rate by about 2%, increasing the mortgage amount for which you qualify. New-home builders may offer buy downs or discounts on the mortgage rate to encourage sales. But vendor financing is usually not renewable, so you have to be prepared to pay the going market rate when the mortgage is renewed.

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