2. (a) You are selling your home, which has a large mortgage with favourable rates. You want to know whether a new purchaser can assume this mortgage. (i) Explain when assumption of a mortgage may occur, and also discuss whether you could bear any liability if the mortgage is assumed. (ii) Would novation of the mortgage be a better idea? Explain when novation may occur, and any liability you could face. (b) You are able to sell your property and now your financial advisor suggests that you should invest your new windfall in mortgages. He lists the various types of mortgages available. Discuss at least three different types of mortgages, relating their advantages and disadvantages to a mortgagee from a legal standpoint, in particular with respect to the security involved.

(a) (i) Assumption of a mortgage may occur when a home is sold, and the buyer takes over the seller's existing mortgage under the same terms, rather than taking out a new mortgage. The buyer must qualify for the mortgage with the lender. If the lender approves, the buyer assumes the mortgage and the seller is released from liability. However, in some cases, the original borrower (the seller) may still bear some liability if the new borrower (the buyer) defaults on the mortgage, depending on the terms of the mortgage agreement and local laws. This is known as a "subject to" mortgage assumption and it's less common.

(ii) Novation of a mortgage involves replacing the original party in a contract with a new party. In the context of a mortgage, novation would involve the new buyer replacing the seller as the borrower under the mortgage, with the lender's approval. This effectively releases the seller from all liability associated with the mortgage. Novation may be a better idea if the seller wants to ensure they have no future liability for the mortgage. However, the buyer must qualify for the mortgage with the lender, and the lender must agree to the novation.

(b) There are several types of mortgages available, each with its own advantages and disadvantages from a legal standpoint:

1. Fixed-Rate Mortgages: These mortgages have a fixed interest rate for the entire term of the loan. The advantage for the mortgagee (lender) is the certainty of a steady return on investment. The disadvantage is that if market interest rates rise significantly, the mortgagee is locked into the lower rate.

2. Adjustable-Rate Mortgages (ARMs): These mortgages have interest rates that adjust periodically based on changes in a reference interest rate. The advantage for the mortgagee is that if market interest rates rise, the interest rate on the mortgage will also rise, potentially increasing the return on investment. The disadvantage is the uncertainty and potential for the rate to decrease.

3. Second Mortgages: These are loans that are secured by the equity in a property. The advantage for the mortgagee is the potential for a higher return due to typically higher interest rates on second mortgages. The disadvantage is the higher risk, as second mortgages are subordinate to first mortgages, meaning in the event of a default, the first mortgage is paid off before the second mortgage.

In terms of security, fixed-rate mortgages may provide more security for the mortgagee as they offer a guaranteed return, while ARMs and second mortgages carry more risk due to their dependence on fluctuating interest rates and their position in the repayment hierarchy.