Category Archives for Rental Property Mortgage
Rental Property Financing Challenges
“Tighter Rules And Lower Lender Appetite Contributing to Rental Property Financing Challenges”
With all the changes in the mortgage financing rules related to residential property, one of the hardest hit areas of the market is the rental property financing or investment property mortgage category.
In a nut shell, the new rules are going to require that you have a down payment or equity component of at least 20% (can be higher in some markets), and debt servicing across the board has tightened up as well.
Making money in as a real estate investor has long been based on understanding the market to secure value and then doing a solid job managing your properties. And while both of those things are still top of the list, an equally important aspect of the business is now managing debt or mortgage financing on your portfolio.
Here is a recent Globe And Mail Article that delves into rental property financing in greater detail.
The article provides a great overview of what the new world of investment property financing now looks like.
And without repeating everything that was included in the post here are some of the highlights.
First, there can be considerable variation from one lender to the next as to their lending and funding criteria for a rental mortgage application.
The primary areas of fluctuation can be found in the combination of loan to value considered, the debt servicing calculation, and the interest rate and term being offered.
Specific to the debt servicing calculation, there can not only be differences among lenders in terms of the amount of cash flow that can be used to service debt, but also the what amount of rents collected can even be used in the calculation.
Investors with existing portfolios are also being challenged to figure out how to both add to their property holdings and refinance existing debt with current or new lenders.
Refinancing in particular can lead to higher interest rates due to the change in the lending environment since the last term was put into place. Changes in your lender’s financing policies can now make a renewal more costly than what you may have been expecting.
The article goes on to mention that one of the keys to be able to properly manage existing rental property debt as well as acquire new mortgages for acquisitions is to be working with rental friendly lenders that are more focused on this space.
And its going to be a good idea to have access to a number of different bank and private lenders so that all your potential basis can be covered.
This makes working with an experienced mortgage broker almost a must due to the considerable variation among programs in the market and fact that these programs are somewhat in flux as time goes on.
If you’re looking for rental property financing for purchase or refinance, then I suggest that you give me a call so we can go through your requirements together and discuss the most relevant options available to you in the market.
2.99 For Rentals Too
“The New 2.99% Mortgage Rates On 4 And 5 Fixed Terms Are Available On Rental Properties”
The new lower fixed terms mortgage rates on the market at 2.99% for a five year stripped down fixed mortgage and a 4 year fully loaded fixed mortgage are also available for rental properties.
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.
Rental Property Mortgages
“Rental Property Mortgages Now Come With Different Considerations”
Ever since the April, 2010 changes to the mortgage insurance regulations, people wanting to purchase and finance mortgage properties are having to put more cash into the deals with the maximum insured mortgage now not to exceed 80% of the fair value of the property. But even greater potential impact is that most A lenders are now only looking at 50% of the rental income for debt repayment versus the 80% they were using in the past.
The main results of these two items is 1) more cash is required to close the deal in the first place if you want a higher leverage mortgage and 2) in order to get 80% of the rental income applied to your mortgage application, you’re going to have to apply to a “B” lender which will increase the rate of interest and reduce the overall profitability of the investment.
That being said, interest rates are still at a very low level so an added 1% to 1.5% in rate is likely not going to kill too many deals.
But the end result overall is that investors may end up holding fewer properties in the short run as we continue to work through the current financial cycle.
Unfortunately, many investors still believe there can be ways around these rules and revised lending standards and continually search the market for something that typically is not there. For mortgage brokers that specialize in rental property mortgages, the approach now is to be up front with the borrowers and layout the challenges right away versus being overly optimistic with securing a better deal that what is available in the market place. This can easily save a week of time shopping the deal around with “A” lenders that will not be able to provide what the client is looking for. By being focused and realistic of what can be done right off the bat, the investor is more likely to get the deal closed on time versus wasting valuable time seeing if there are any market anomalies they may be able to take advantage of.
On the flip side, mortgage brokers who don’t typically work with rental property mortgage requests are more likely to spend a lot of time spinning their wheels trying to get a positive answer from unlikely sources.
If you need a Toronto rental property mortgage, I suggest that you give me a call so I can quickly assess your requirements and provide rental property mortgage options that meet your needs, in the time you have to work with.
Click Here To Speak With Joe Walsh, a Toronto Mortgage Broker
Mortgage For Rental Property
If you’re seeking a mortgage for rental property in Ontario, there are several financing options to consider.
For the residential market, where investment properties can include a single family unit home, townhouse, duplex, basement apartment, condo and come from a conventional sales process or even power of sale process, the primary mortgage options fall into two groups.
On the institutional side, residential investment properties still fall under the Canada Mortgage and Housing Corporation (CMHC) for insured mortgages. Borrowers and properties that qualify for mortgage insurance can secure leverage of up 90% of the property value.
Mortgage insurance is an additional cost of financing, but it allows for a much higher level of potential leverage which may be required to make the deal work in the first place. Cash conservation tends to be very important in growing an investment portfolio, so as long as the property can cash flow repayment, an insured mortgage will minimize the cash outlay for down payment, potentially freeing up funds for other rental property investments.
The second group of mortgage options falls under the private mortgage category. While a private mortgage for rental property will likely provide lower potential leverage than an institutional mortgage, there are other benefits to consider.
With respect to leverage, private mortgages on rental properties tend to range between 65% and 75%. On average, the leverage will be closer to 65%. To get to the higher end of the range, the property would have to be very strong in terms of its valuation and resale potential.
Private mortgages are effectively bridge loans in that they will either be for a one year to two year period of time. There may be opportunity for renewal, but there will also be renewal fees incurred for term extensions.
Private rental property loans are more about speed to closing and less stringent mortgage qualifying. If you’re on a tight time line to close a deal you can’t afford to lose, then a private mortgage option may be your best approach to getting the deal done. Or, if you’re credit profile is not strong enough to qualify for institutional financing, a private deal may still make sense if the property can generate a positive cash flow after financing costs are factored in.
If you’re looking for a mortgage for rental property, I suggest that you give me a call so I can quickly assessment your situation and provide you with the best available options.