Humber/Ontario Real Estate Course 3 Exam Practice

What is not an advantage of assuming an existing mortgage for buyers and sellers?

1. The seller can avoid a payout penalty

2. The seller is not financially responsible if the buyer defaults on the assumed mortgage

3. More attractive financing terms may be available

4. The existing mortgage may make the home more saleable

5. The buyer's financial obligations increase

6. The interest rates are always fixed

The correct answer is: The seller is not financially responsible if the buyer defaults on the assumed mortgage

Assuming an existing mortgage can be beneficial for both buyers and sellers under different circumstances, but one of the key understandings is related to the ongoing financial responsibilities that accompany such an assumption. When a buyer assumes an existing mortgage, the original borrower (the seller) remains financially liable for the debt, despite transferring the property and the mortgage to the buyer. This means that in the event the buyer defaults, the seller could still be held accountable for the mortgage payments. This is why it is inaccurate to say that the seller is not financially responsible if the buyer defaults on the assumed mortgage. In most cases, the original borrower does not fully absolve themselves of liability until the mortgage is paid off or refinanced, which can create potential financial risk for the seller. The other options highlight advantages such as the ability for the seller to avoid a payout penalty, the potential for more attractive financing terms to exist under the assumed mortgage compared to new mortgage options, and the fact that the home may be more saleable with an existing mortgage that has favorable terms. The buyer, however, is generally increasing their financial obligations and the nature of interest rates being fixed or not would vary with each mortgage agreement, making those aspects not universally applicable as advantages of assumption.