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.
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel