I’ve been getting this question a fair bit in the last two weeks since the the 2.99% five year term hit the market place.
And if you are an investor with rental properties, the programs that are out can be utilized for rental property mortgages, provided that any one specific rental property meets the rest of the lending and funding criteria of the lender.
This is great news for rental property investors as they too have the ability to potentially lower their capital cost and increase the profitability of these properties.
With more lower rate programs expected in the short term, its likely there will be even more market choices to consider before too long.
If you have a rental property that you would like to better understand your rental mortgage refinancing options to take advantage of these lower rate fixed term programs, I suggest that you give me a call so we can go through your situation together and discuss the different options that are relevant to your situation.
Added to that the news last week that the Bank of Canada will not change the overnight lending rate which has been sitting at 1% for the last 16 consecutive months (new record), and all near term indications are that rates are going to stay where they are, or perhaps even go lower in the short term.
The advertising of the 2.99% mortgage rate has taken the market by storm with lenders, brokers, and consumers getting caught up in a major mortgage product offering a still lower rate than we’ve gotten used to over the last number of years.
But while the rate is exceptional, the overall mortgage product does come with its limitations.
First of all, this is a closed mortgage with an annual prepayment option of 10% when the industry average is 20% per year.
This mortgage product has other stripped out features that are common in most other BMO residential mortgage products.
But lower rates, mean lower risk, so its not uncommon, and even expected that the lowest rate offerings on the market are going to have mortgage feature trade offs to consider.
That being said, if you can work with the 5 year term as written, then this is an excellent rate which is going to be in place for a full 5 years, regardless of what happens in the mortgage market place during that same time period.
In keeping with the cost benefit argument, we also currently have at our disposal a 2.99% mortgage rate product for a term of 4 years where many of the aforementioned standard mortgage features are not stripped out of the product.
So for those of you who are looking at a great rate and all the bells and whistles, this is a great product to consider for a new home purchase or a mortgage refinancing scenario.
Even though the market place is blessed with a large cross section of mortgage products, each lender is trying to differentiate themselves in the market to some degree, so its important to be able to understand not only the selling features of any given mortgage product, but also how they will be applied in real time once you have a mortgage in place.
Therefore, we always strongly advise that you work with an experienced mortgage broker who can go through the mortgage programs most relevant to your requirements, and take the time to help you clearly understand the trade offs from one product to another as well as how each product may impact you projected financial planning.
If you’re interested in learning more about these lower interest rate mortgages on the market, I suggest that you give me a call so we can quickly go through your requirements and discuss mortgage programs that are the best fit for your needs.
Land development refinancing typically occurs when a project has completed the initial planning stage and requires incremental capital to develop and service all or part of the development, or when the term is up on an existing mortgage and the lender is no longer interested in keeping their funds in the project.
The initial mortgage that is in place may have been a land loan to help acquire the property, or a mortgage acquired post acquisition where funds were used to help fund the planning work required to get all the necessary approvals and zoning changes required to move the project forward.
If the land development refinancing is at the stage where construction development work is going to begin or continue, then the sources of financing that will consider this type of opportunity will be looking very closely at the property owner or developers cash development plan as well as their exit strategy to repay the debt.
From a cash investment point of view, institutional lenders can vary in terms of their interest in funding both hard costs and soft costs. Its not uncommon for the lower cost forms of construction financing to only finance a percentage of the hard costs, requiring the developer or property owner to fund part of the hard costs and 100% of the soft costs as the work is completed.
The exit strategy is also going to be important and its not uncommon for all forms of land development refinancing sources to want to see a significant number of pre sales before they will be prepared to fund a particular project.
Its not uncommon for a development property to appreciate considerably in value once zoning milestones and site plan approvals have been acheived.
However, in order to leverage the incremental market value in the land, the combination of cash investment in the project to date as well as incremental cash to invest and a solid exit strategy are still going to be important aspects of getting land development refinancing.
This is why its important to start working with potential development refinancing sources early on in the process so you can make sure to structure both your cash flow and business model in a fashion that will most likely meet with lender requirements.
Otherwise, land development projects that have a lot of potential can still have a hard time attracting capital due to their inability to sufficiently cover off lender risk.
If you in the planning stages of land development project, or require land development refinancing for a project you are currently in the middle of completing development, I suggest that you give me a call so we go through your requirements together and discuss potential land development refinancing options that may be available to you.
Land development financing either for a subdivision or site development work prior to building construction can be considerably harder to locate and secure at times compared to conventional construction financing.
The main reason for this is the amount of variable that are associated with land development work as compared to building construction that is being performed under a building permit.
With land development financing, the magnitude of risk is much higher due to the unknowns associated with moving earth and working in the under ground. More things can go wrong and/or will take more funds to complete than budgeted. And unplanned items can also crop up that have to be dealt with.
Needless to say, there is a considerable amount of skill required to manage land development projects which is also why builder or developer experience tends to be the first main criteria considered by most sources of land development loans.
And experience can relate to a number of things such as 1) the number of projects the land developer has worked on of similar size and scope to the one requiring financing, 2) the degree of success they have had completing the project within the regulatory requirements and budget, 3) the amount of financial success or failure they have encountered from past projects, and 4) the level of customer service they have extended to those they have sold developed property to.
Outside of developer experience, there are many other critical elements that a construction lender will look at when considering land development financing including the amount of pre-sales that have been made, the source of the budgeting estimates, the amount of equity invested in the project, and the overall timelines and details for both completing the work and reaching the planned point of exit just to name a few.
Also, depending on how the business model for a given project is structured, it may not suit the lending/funding requirements of certain lenders so its going to be important to understand who in particular will be interested in a deal, or how the deal will have to be structured or altered to meet the sources of funding that are available to the developer.
The best way to land development financing is to work through an experienced construction mortgage broker who has access to a broad cross section of commercial mortgage lenders that will consider these types of projections.
If you are in the early planning stages of a land development project, or in the middle of an ongoing project, I suggest that you give me a call so we can go through your requirements together and discuss different land development financing options available to you.
Subdivision development financing is arguably the toughest form of construction financing that there is to arrange.
The main reason being is that there can be an enormous amount of requirements and moving parts where if even one cog in the wheel starts to stick, the whole project can become delayed or even collapse.
Compare this to construction financing where a building permit is issued by the governing body responsible for building requirements on the property and development financing becomes a whole different kettle of fish.
In many cases, subdivision development financing is not provided by banks or institutional lenders either. This is largely because the projects cannot provide cash flow debt servicing for large periods of time which is viewed to be a higher risk lending scenario and as a result, does not tend to meet the risk requirements of front line branded lenders.
To provide subdivision development financing, the lending source has to understand the business and have the ability to assess the status of a given project and be able to determine if a deal can be structured that will meet the lending/funding requirements of the organization.
Because of the amount of detail that can go into a development, a non experienced lender or non specialized lender can have a hard time wrapping their head around the deal and typically a confused mind always says no, so its going to be important to be working with someone who knows their way around subdivision development financing.
Aside from the requirement complexity, a suitable lender is going to be focused in on the capital contribution made to the project by the developer or developer group as well as the exit strategy for selling off the development and repaying the construction development mortgage.
Many times, subdivision developers will either sell off the developed lots to builders, or partly sell off lots and partly build out lots themselves.
In either case, the strength of any sale arrangement, including the financial stability of the buyer or buyers is going to be key to any lender that will consider providing subdivision development loans or mortgages.
From an owner or developer financial contribution stand point, the more funds invested in the project by the owner or owners, the stronger the likelihood of acquiring development financing as well.
There is no question that as planning milestones are met that the value of the property goes up in value and over a period of time, the completed regulatory work can add considerable market value to the real estate.
But relying heavily on sweat equity can also limit the number of potential lending suitors as there is no replacement in the risk assessment model for the investment of hard cash.
Developments that are in outlying areas are also going to be more challenging to finance as compared to those in major centers. But if the lot absorption rates are reasonable and the project timeline not extending past two or three years, then the probability of subdivision development financing being available to your project is going to be a lot higher.
If you have a subdivision development project that you are planning or are in the middle of where development financing will be required at one or more stages of the project, then I suggest that you give me a call so we can discuss your project in sufficient detail and see what subdivision development financing options are available to you.