In the Philippine real estate market, one of the lesser-known but increasingly popular modes of acquiring titled residential or commercial property is through mortgage assumption (commonly called “assume balance” or “pagkuha ng assume”). This happens when the buyer takes over the existing mortgage loan of the seller from the bank, Pag-IBIG Fund, or other accredited financial institution, instead of the seller paying off the loan and the buyer obtaining a completely new loan.

This arrangement can be attractive because:

The remaining loan usually carries the original (often lower) interest rate locked in years ago.
It bypasses some bank processing fees for a brand-new loan.
It is faster than a regular bank financing application.
Pag-IBIG assumers can retain the benefit of the lower Pag-IBIG interest rates (currently 5.375%–8.5% depending on loan amount).

However, mortgage assumption is heavily regulated and involves three parties: the seller (original borrower), the buyer (assumer), and the lender (bank or Pag-IBIG). Below is the most comprehensive guide based on Philippine law, jurisprudence, and current practice as of 2025.

I. Legal Basis

Civil Code of the Philippines
- Art. 1291 – Obligations may be modified by novation (substitution of debtor).
- Art. 1301 – Conventional subrogation (the most common form in mortgage assumption): a third person steps into the shoes of the original debtor with the creditor’s consent.
Republic Act No. 6552 (Maceda Law) – applies only if the property is a residential subdivision lot or condominium unit on installment basis. Assumption of the balance is one of the grace period options.
**Pag-IBIG Fund Circulars (especially Circular 428 and 439 as amended) – very detailed rules for Pag-IBIG housing loan take-out and assumption.
Bank and SSS internal guidelines (each bank has its own assumption policy).

II. Types of Mortgage Assumption Recognized in the Philippines

Type	With Release of Original Borrower (Recommended & Most Common)	Without Release (“Informal” or “Deed of Sale with Assumption of Mortgage”)
Legal effect	Novation + conventional subrogation. Original borrower is fully released.	Simple sale with accessory agreement. Original borrower remains principally liable.
Bank approval required?	YES (100%)	Technically NO, but banks almost always discover it and can foreclose.
Risk to original borrower	None after approval	Remains liable for the entire loan even after selling.
Risk to buyer	Lower, because credit investigation is done again performed	Very high – bank can still run after the original borrower.
Registry of Deeds annotation	Clean title transfer possible after release	“Assumption of Mortgage” is annotated; title remains in seller’s name or is transferred but with heavy annotation.

Best Practice: Always go for assumption WITH release of the original borrower.

III. Step-by-Step Legal and Documentary Procedure (With Release)

Negotiation and Letter of Intent / Offer to Assume
- Buyer and seller agree on the “equity” or “cash-out” (the difference between current fair market value and the outstanding loan balance).
- Execute a notarized Letter of Intent to Assume Mortgage or Memorandum of Agreement (MOA) containing:
  – Selling price / equity
  – Outstanding balance to be assumed
  – Who pays processing fees, capital gains tax, transfer taxes, etc.
  – Deadline for bank approval
Application for Assumption with the Lender
The following documents are submitted jointly by seller and buyer:

A. For Private Banks (BPI, BDO, Metrobank, Security Bank, etc.)
- Letter-request for assumption signed by both seller and buyer
- Buyer’s application form + 2 valid IDs
- Proof of income (latest ITR, payslips, COE, or business docs if self-employed)
- Latest Statement of Account (SOA) and amortization schedule
- TCT/CCT + certified true copies of tax declarations
- Latest Real Property Tax receipt and clearance
- Marriage contract (if applicable)
- Assumption fee (usually 1%–3% of outstanding balance or fixed amount)
- Credit investigation fee, appraisal fee (if bank requires re-appraisal)
B. For Pag-IBIG Fund Acquired Assets or Regular Take-out
- Housing Loan Assumption Application Form (HQP-HLF-173)
- Membership Status Verification Slip (MSVS) of buyer (buyer must be an active Pag-IBIG member)
- Assumption fee: ₱3,000–₱5,000 + 0.5% of original loan amount
- One (1) month advance amortization (sometimes required)
Credit Investigation and Approval
- Bank/Pag-IBIG runs full credit investigation on the buyer (C/A, employment, capacity to pay).
- Typical processing time:
  – Banks: 2–6 weeks
  – Pag-IBIG: 4–12 weeks
Issuance of Approval Letter / Assumption Agreement
Once approved, the lender issues:
- Approval letter addressed to both parties
- Deed of Assignment and Amendment of Real Estate Mortgage (for banks) or
- Certificate of Full Payment and Release of Mortgage (Pag-IBIG issues Certificate of Assumption)

Payment of Taxes and Fees

Expense	Usually Paid By	Legal Basis	Rate (2025)
Capital Gains Tax (6% of selling price or zonal value, whichever higher)	Seller	Sec. 24(D), Tax Code	6%
Documentary Stamp Tax on the Deed of Sale	Buyer or shared	Sec. 196, Tax Code	1.5% of selling price
Documentary Stamp Tax on Assumption (if separate document)	Buyer	Revenue Regulations	₱15 for every ₱1,000
Transfer Tax	Buyer	Local Government Code	0.5%–0.75% of selling price
Registration fees	Buyer	Act 496 / PD 1529	Schedule in RD regulations
Notarial fees	Buyer or shared	2004 Rules on Notarial Practice	₱2,000–₱10,000 typical
Assumption processing fee	Usually buyer	Bank/Pag-IBIG circulars	1%–3% or fixed

Execution of the Deed of Absolute Sale with Assumption of Mortgage + Release
The deed must state:
- That the buyer assumes the remaining balance “in substitution” of the seller
- That the lender has approved and released the seller
- The exact outstanding balance as of cut-off date
Annotation of the New Mortgage and Cancellation of the Old One
- Submit to Registry of Deeds:
  – Deed of Absolute Sale
  – Original TCT/CCT
  – Release of Mortgage / Cancellation of old annotation
  – New annotation in the name of the buyer
- RD processing: 10–30 days (accelerated under RA 11573 if all docs complete)
Turnover of Property and Original Documents
Seller turns over:
- Owner’s duplicate TCT/CCT (now in buyer’s name)
- Keys, association dues clearance, etc.

IV. Special Cases

A. Pag-IBIG “Acquired Assets” (foreclosed properties)
– These are sold via “installment with assumption” but the buyer still goes through credit investigation. The old borrower is already out.

B. In-house financing (developer still holds the mortgage)
Many developers (Ayala Land Premier, Rockwell, Megaworld) allow assumption but require their own approval plus payment of transfer fee (1%–2% of original contract price).

C. Deceased Borrower
The heirs may sell via assumption, but all heirs must sign the application and the estate tax (6%) must have been paid or BIR CAR obtained.

V. Risks and Red Flags

“Assume balance” scams where the seller disappears after receiving equity but never processes the assumption – buyer ends up paying amortization but title remains with seller.
Informal assumption without bank approval – bank can still foreclose and run after the original borrower.
Hidden liens or encumbrances discovered only during RD annotation.
Buyer fails credit investigation – transaction aborts and equity may be forfeited depending on the MOA.

VI. Checklist Before Signing Anything

Obtain latest SOA and check for any arrears
Verify title is clean (no lis pendens, adverse claim, etc.)
Confirm with lender that assumption is allowed (some old contracts prohibit it)
Engage your own lawyer and notary public
Place equity in escrow until title is transferred

Mortgage assumption, when done properly with full bank/Pag-IBIG approval and release of the original borrower, is a perfectly valid, safe, and cost-effective way to acquire real property in the Philippines. It is governed primarily by the principle of conventional subrogation under the Civil Code and the specific guidelines of the lender. Always insist on the formal route to protect all parties involved.