Guide To Investment Property Mortgages - Part Three
Last week, we discussed the different types of down payments you could put down for investment property mortgages - but did you know there are other options available to you?
What Are My Other Options?
With Genworth Financial's 10% program and CMHC's 5% program these really are the golden years of residential investment property mortgages in Canada. But there are other options...
If you really want to get aggressive you can turn to "hard money" lenders. These are basically mortgage brokers or other professionals who have access to individuals willing to lend you money. There are still qualifications to meet but they may be less stringent. You'll pay for this privilege though; typical hard money loans have interest rates of 12% or higher with finder fees tacked on to them as well.
Venture into "hard money" investment property mortgages with caution and work with an experienced real estate investor/coach/mentor only. There are also private institutions like Xceed Financial that have offered 5% down mortgages in the past for investors without perfect credit. With recent changes in the financial industry these may vanish soon. However, for these types of investment property mortgages you will require high enough income, a good to great credit score and you will likely jump through a few extra qualification hoops.
-- Amortization Periods – Investment Property Mortgages
Canadian investment property mortgages have had recent changes around amortization periods. Until 2006 almost all your options involved using a 25-year amortization period or less.
Today, we can get amortization periods on investment property mortgages all the way up to 35-year amortizations.
There are a couple of driving forces behind these changes. With home prices increasing across Canada rapidly, longer appreciations allow for lower monthly payment and therefore more people can qualify for home ownership. Getting people into their own homes is one of the main reasons for the existence of mortgage insurers like CMHC.
Some recent studies reported that younger Canadian families are more interested in 'lifestyle' than 'paying off their mortgage'. So, with lower monthly payments a result of longer amortization periods the mortgage insurers are giving the public what it's looking for apparently. Longer amortization periods also mean that you are paying much more interest on your mortgage throughout its life.
That is, each of your mortgage payments have a higher portion of it going to interest instead of the principal portion of the mortgage. For the home that you are purchasing to live in this may not be the best situation. But, for investors, long amortization periods on investment property mortgages have two main advantages:
1. The interest paid on these mortgages are tax deductible.
2. The lower monthly payment can reduce your monthly carrying costs very nicely.
Out of everything discussed around investment property mortgages, amortization periods get the most animated response from people. So, if you are not sure what choices you should be making, find an experienced coach or mentor and bounce your questions off them.
"What Else Should I Know?"
There are details, fine print and exceptions to almost everything. Things like mortgage penalties, mortgage insurance rates and mortgage terms need to be addressed. You will need to do your homework and make sure the investment property mortgages you use are right for you. Ask questions, don't be scared. If what the bank or mortgage broker is offering you is confusing, get clarification.
I hope this series was helpful! If you have any additional questions about investment property mortgages, please feel free to reach out.
And if you are thinking of becoming a real estate investor yourself, or you are already an investor and would like to leverage your current investment(s) into more properties, or you are looking to sell one or more of your investment properties, give me a call at 905-683-7800 and I’ll be more than happy to answer any and all of your questions.
Thanks For Reading Today’s BLOG!
Brian Kondo
Sales Representative / Team Leader
The Brian Kondo Real Estate Team
Re/Max Hallmark First Group Realty Ltd.
905-683-7800 office
905-426-7484 direct
brian@briankondo.com
www.BrianKondo.com
www.BrianKondoTeam.com
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