Financing a Second Home

An offer to purchase will contain information about how the buyer intends to finance his or her purchase. Existing Financing: If you currently have a mortgage loan on your home (see our mortgage rates for BC), you may be faced with one of three situations: The buyer wants to pay cash and have no mortgage. This situation will require you to pay out your existing mortgage and there will probably be an interest penalty for doing this unless you have an open mortgage. Remember that having to pay an interest penalty effectively reduces the price you will be receiving for your home.

The buyer offers to assume, or take over, your remaining mortgage loan.
In this situation, before agreeing to allow the buyer to assume your mortgage loan, you should ensure that your mortgage lender will release you from any future obligation to repay the monies owning (if the buyer defaults). The buyer wants to take out a new mortgage loan. Contact the financial institution that holds your mortgage to obtain information in writing about your position in each of the above situations. Also if you are home buying financing it is a good idea to do this earlier, if time is permitting, so that you will be prepared.

Financing by the Seller:

If you have no existing mortgage, an offer to pay all cash is ideal and, of course, would be your preference.But the buyer’s offer might state that part of the purchase price is to be paid in cash and part is to be paid in payments over a specified period of time at a specified interest rate. In effect, the buyer would be asking you to become the lender.

When you are considering an offer containing a request for "seller financing" (sometimes referred to as a take-back mortgage), think about whether or not you want the responsibility of collecting payments over an extended period of time. If you do feel comfortable with such an arrangement, be sure that you verify the buyer’s source of income and credit history before making a decision. Ask us or your accountant to fully explain the financial significance and the possible consequences of the terms offered.