Homeowners attracted by the prospect of saving thousands in discharge fees when a buyer assumes the existing mortgage should make sure they understand exactly what risks a home seller faces through this action. In many provinces, the original borrower remains personally responsible for repayment of the mortgage under a mortgage clause called the personal covenant. This is a legally-binding promise by the borrower or mortgagor that the mortgage debt will be completely repaid.
Provincial laws vary in protecting the original borrower.
In Alberta, homeowners are automatically released from the personal covenant when their mortgage is assumed. In Ontario, some mortgagees will release the mortgagor if the mortgagor finds the right person to ask and is very persistent. Other mortgagees will not release the mortgagor, whom they see as a guarantee they will not lose money on the mortgage. When the mortgage debt is more than 75 percent of the appraised value of the home, there will be greater risk in an assumption than in cases where the mortgage is less than 50 percent of the value. As the mortgage gets older and older, the amount of the mortgage decreases and the risk to the original mortgagor decreases.