In the Philippine real estate market, one of the most practical and widely used mechanisms when selling a property that is still under an existing housing loan is the assumption of mortgage. This process allows the buyer to take over the seller’s remaining loan balance and continue paying it under the same (or sometimes renegotiated) terms, while the property title is transferred to the buyer.

Mortgage assumption is particularly attractive when the original loan carries a lower interest rate than current market rates, or when the buyer wishes to avoid the higher processing fees and appraisal costs of a completely new loan application.

This article exhaustively covers the legal framework, requirements, step-by-step procedures, fees, taxes, advantages, disadvantages, risks, and special considerations for housing loan assumption in the Philippines, with particular emphasis on Pag-IBIG Fund loans and commercial bank loans.

Legal Basis

The assumption of mortgage in the Philippines is governed by the following principal laws and regulations:

Articles 1291–1304 (Novation) and Articles 1601–1607 (Assumption of Obligations) of the Civil Code of the Philippines – These allow the substitution of a debtor with the creditor’s consent.
Republic Act No. 9679 (Pag-IBIG Fund Law) and its Implementing Rules and Regulations.
Bangko Sentral ng Pilipinas (BSP) Manual of Regulations for Banks – Particularly the provisions on real estate loans and transfer of mortgaged properties.
Republic Act No. 11201 (Credit Surety Fund Cooperative Act) and related banking circulars on loan take-out and assumption.
National Internal Revenue Code (as amended by TRAIN Law and CREATE Law) – Governing taxes on the transfer.

The Supreme Court has consistently upheld that a mortgage is merely accessory to the principal obligation (the loan). When the loan is validly assumed with the creditor’s consent, the mortgage automatically follows the new debtor without need for a new mortgage contract (unless the bank requires it).

Types of Mortgage Assumption Recognized in Philippine Practice

Simple Assumption (Cum Viribus or Delegatio)
The buyer assumes payment of the loan, but the original borrower remains solidarily or subsidiarily liable. Banks almost never agree to this.
Assumption with Release of Original Borrower (Novation by Substitution of Debtor)
This is the standard form used in the Philippines. The buyer completely replaces the seller as borrower, and the seller is fully released from liability. This requires explicit approval of the lender.
Assumption with Repricing or Restructuring
Some banks allow the buyer to assume the remaining balance but convert the loan to current interest rates or extend/reduce the term.

Pag-IBIG Housing Loan Assumption

Pag-IBIG Fund is the most assumption-friendly institution in the country because of its socialized housing mandate.

Who May Assume a Pag-IBIG Housing Loan?

The buyer must be a Pag-IBIG member in good standing (at least 24 months total contributions).
Maximum age at maturity: 70 years (65 if the loan will mature beyond age 65, a co-borrower ≤ 60 is required).
Gross monthly income must meet the required debt-to-income ratio.
No outstanding Pag-IBIG housing loan (except when assuming a relative’s loan under certain conditions).
The property must not be more than 15 years old at the time of assumption (waivable in some cases).

Required Documents for Pag-IBIG Assumption

Letter of Intent to Assume signed by both seller and buyer
Original TCT/CCT/OCT with Pag-IBIG annotation
Latest Statement of Account from Pag-IBIG
Updated Real Estate Tax Clearance and Tax Declaration
Two valid government IDs each of seller, buyer, and spouses (if married)
Marriage Contract or CENOMAR (if applicable)
Proof of income of buyer (latest ITR, payslips, COE)
Pag-IBIG Membership Status Verification Slip
Transfer Tax Receipt, CAR, and new Tax Declaration after title transfer
Notarized Deed of Absolute Sale with Assumption of Mortgage

Pag-IBIG Assumption Process (Step-by-Step)

Seller and buyer execute a Deed of Absolute Sale with Assumption of Mortgage.
Pay Capital Gains Tax (6%) and obtain Certificate Authorizing Registration (CAR) from BIR.
Pay Documentary Stamp Tax (1.5% of selling price), local transfer tax (0.75% Metro Manila / 0.5% provinces), and registration fees at Registry of Deeds.
New TCT/CCT is issued in buyer’s name with Pag-IBIG mortgage annotation intact.
Both parties file Joint Application for Assumption at any Pag-IBIG branch.
Pag-IBIG conducts credit investigation, property inspection (if needed), and appraisal (sometimes waived).
Upon approval, buyer pays the assumption processing fee.
Pag-IBIG issues new Loan and Mortgage Agreement in buyer’s name and releases the seller from liability.

Pag-IBIG Assumption Fees (as of 2025)

Processing fee: ₱3,000 (for loans ≤ ₱1.5M), ₱5,000 (above ₱1.5M up to ₱3M), ₱7,000 (above ₱3M)
Mortgage Redemption Insurance (MRI) and Fire Insurance premiums (recomputed based on buyer’s age)
Notarial fee for new Loan Agreement: ₱2,000–₱5,000

Processing time: 30–60 days from complete submission.

Commercial Bank Housing Loan Assumption

Banks such as BDO, BPI, Metrobank, Security Bank, RCBC, China Bank, PNB, UnionBank, and PSBank generally allow assumption, but policies vary.

Common Bank Requirements

Buyer must qualify under current lending guidelines (income, credit score, age ≤ 65 at maturity).
Outstanding loan must be updated (no arrears).
Remaining term usually at least 5 years.
Some banks require the buyer to top-up equity if current appraised value justifies a higher loan amount.

Typical Bank Assumption Fees (2024–2025 rates)

Assumption fee: 1%–2% of outstanding balance or flat ₱50,000–₱150,000
Appraisal fee: ₱4,000–₱7,000
MRI and Fire Insurance recomputation
Notarial and documentation fees: ₱10,000–₱25,000
Some banks charge a “repricing fee” if the buyer wants current rates

Banks Known to Be Assumption-Friendly (2025)

BDO – Very flexible; allows repricing
BPI Family Savings Bank – Fast processing
Metrobank – Accepts assumption even for older loans
Security Bank – Often waives appraisal for recent valuations
PSBank – Simple process for Prime properties

Banks That Rarely Allow Assumption

EastWest Bank (usually requires full payment)
Some foreign banks (HSBC, Standard Chartered) – policy is case-to-case

Taxes and Government Fees on Sale with Assumption

Even with assumption, the sale is treated as a regular transfer for tax purposes:

Capital Gains Tax – 6% of gross selling price or BIR zonal value, whichever is higher (paid by seller).
Documentary Stamp Tax on Sale – 1.5% of gross selling price or zonal value (paid by buyer or as agreed).
Local Transfer Tax – 0.75% of selling price in Metro Manila; 0.5% in provinces (paid by seller usually).
Registration Fees – Based on BIR schedule (approximately 0.25%–0.5%).
Documentary Stamp Tax on Assumption – Some banks/BIR offices require DST of 1.5% on the outstanding loan balance if a new mortgage contract is executed (practice varies by RD).

Advantages of Mortgage Assumption

Buyer inherits lower fixed interest rate (especially Pag-IBIG 6%–8% vs. current bank rates 8.5%–11%).
Significantly lower processing fees vs. new loan (₱3,000–₱150,000 vs. ₱200,000+ for new application).
Faster occupancy – buyer can move in immediately after title transfer even while assumption is processing.
Seller avoids prepayment penalties (many banks waive penalty on sale with assumption).

Disadvantages and Risks

Buyer is locked into original terms (if rate is high, disadvantageous).
Seller remains liable until formal release is issued by the lender (risk period of 1–3 months).
If buyer defaults after assumption approval but before release, seller may still be sued.
Banks may require seller to remain as co-maker until full payment in rare cases.
Some condominium corporations do not allow assumption without their prior approval.

Best Practices to Protect Both Parties

Include a clause in the Deed of Absolute Sale that the sale is subject to approval of assumption; if denied, seller refunds payments and buyer vacates.
Use an Escrow Agreement for the equity payment (buyer’s payment to seller for equity = selling price minus outstanding loan).
Seller should demand the original TCT/CCT only upon full receipt of equity and written release from the bank/Pag-IBIG.
Always engage a licensed broker or lawyer experienced in assumption transactions.

Alternatives to Assumption

Seller pays off the loan in full using buyer’s equity payment, then buyer applies for a brand-new loan.
Contract-to-Sell arrangement while buyer applies for bank financing (common in subdivisions).
Rent-to-own or lease-purchase agreements (less recommended due to legal complexity).

Mortgage assumption remains one of the most cost-effective and practical methods of transferring financed properties in the Philippines when executed properly. With interest rates expected to remain elevated through 2026–2027, assuming an older low-rate Pag-IBIG or bank loan will continue to be a highly attractive option for buyers and a faster exit strategy for sellers.