Could Your Mortgage Use a Spring Check-Up?

General Kris Krawiec 31 Mar

Now that spring has sprung, it’s a perfect time for your annual mortgage health check-up. If you make time for a quick review each spring, it may yield you some fruitful financial savings.

Your 2015 home loan review will examine the most common potential monthly savings opportunities, including high-interest credit card debt or fixed loan payments. Reviewing your options annually could result in having more money left over at the end of each month. 

With interest rates at historic lows, now is the time to investigate all your options and perhaps save yourself thousands of dollars per year! Imagine what you could do with the savings – anything from renovating or investing to going on a much-needed vacation or putting money towards your children’s education.

Right now, you can lock into a five-year mortgage below 3%. You could have done the same in 2001 but it would have been about 7%. In 1982 it would have been 18%. Even in the low-rate days of 1952, it would have been about 5.5%.

Borrowing costs are lower than any time in modern history. If your current rate is above 3+%, now may be a good time for a free spring mortgage check-up.

Completing a straightforward annual review will keep your home financing as lean and trim as possible. In other words, you will have a clean bill of mortgage health, which is just what the doctor ordered!

If you’d like a free mortgage check-up, call or email me today! 

Mississauga Mortgage Broker Kris Krawiec 416-845-3745

Have You Considered Opting for a 50/50 Mortgage?

General Kris Krawiec 9 Mar

Hybrid mortgages – also known as 50/50 mortgage products – include an equal mix of fixed-rate and variable-rate components within your single mortgage. This means you get the best of both worlds – the security of fixed repayments with the flexibility of a variable rate.

Although there was a time in recent years when mortgage experts considered a variable-rate mortgage as the obvious choice to save mortgage consumers money over the long term, with fixed rates remaining near historic lows, a 50/50 mortgage may be a great alternative for you.

In essence, since it’s extremely difficult to accurately predict rates over the long term, a 50/50 mortgage offers interest rate diversification, which can help reduce your level of risk.

If you opt for a 50/50 product, half of your mortgage is locked into a five-year fixed rate and half is at a five-year variable rate. You can lock in your variable-rate portion at any time without paying a penalty. As well, each portion of the 50/50 mortgage operates independently – like two separate mortgages – yet the product is registered as only one collateral charge.

The 50/50 mortgage product is well-suited to a variety of borrowers, including those who:

  • Would normally go fully variable but are afraid prime rate is at its bottom
  • Aren’t comfortable being locked into a fully fixed rate
  • Can’t decide between a fixed or variable mortgage
  • Savvy first-time homebuyers

Some features of the 50/50 mortgage include:

  • 20% annual lump-sum pre-payment privileges
  • 20% annual payment increase ability
  • Portability (the option to transfer your existing loan amount to a new property without penalty)

As the 50/50 option is a fairly new offering, according to a recent study by the Canadian Association of Accredited Mortgage Professionals (CAAMP), 5% of Canadian mortgage holders have 50/50 mortgages compared to 28% with variable-rate mortgages and 68% with fixed-rate mortgages. But many experts believe the 50/50 mortgage is quickly gaining momentum.

Student Rentals

General Kris Krawiec 9 Mar

While opportunities abound in student housing throughout college and university towns from coast to coast, financing these investments can prove to be quite tricky, especially if you don’t do your homework. For one, you’re going to need a larger down payment (on average, about 20-25 per cent) than if you were to purchase a typical single family residential property (for as little as five per cent down).

And thanks to the current credit crunched lending environment, this isn’t an ideal venture for first-time investors, since lenders don’t have a large appetite for student housing and, if the loan has to be insured (less than 20 per cent down), Canada Mortgage and Housing Corporation’s (CMHC) rules will come into play.

The trouble is, should a lender have to foreclose on a student rental property, they have to ensure it’s marketable. That’s why “rooming houses” – residential properties with common living areas and a large number of bedrooms – are not something lenders will typically even look at. This would entail knocking down walls and getting the property back up to snuff as a single-family residence – something that would prove costly, both in terms of time and money, to lenders.

In fact, big banks will very rarely finance student housing and, if they do, it’s because the investor has close ties with that financial institution and deep pockets.

The thought of student housing often makes lenders and CMHC cringe due to the hands-on management required by real estate investors who venture into this niche, as well as high turnover rates. As such, your lender and CMHC, if applicable, will want to know you’ve been successfully managing this type of investment in the past. The more information you can provide to detail your game plan, the better. Things lenders and CMHC look for when considering offering financing for these types of deals include: the amount of experience a real estate investor has with hands-on management of student housing; 12-month leases signed by the students’ parents, which helps alleviate risk of foreclosure; a maintenance reserve, since the higher turnover of student housing often translates to higher maintenance costs; and strong investor funds/credit.

The trade-off to the higher risk associated with student housing real estate investments is that they can cash flow much better than many traditional investment properties as the combined rental income is often much higher than market rent. 

Commercial units – such as apartment buildings and condos – are more likely to be viewed as wise investments for more experienced investors, because they can be rented to different types of tenants, not just students. Although, where students are concerned, you can rent out a three bedroom unit per bedroom as you would with a single-family residential rental property. The key here, however, is that lenders can more easily turnover an apartment that goes into foreclosure because the separate units and structure as a whole likely haven’t been adjusted to accommodate multiple tenants – i.e., extra bedrooms constructed by adding walls and hallways. Keep in mind that, on average, commercial mortgage financing costs about one per cent to two per cent more than a residential mortgage. That said, commercial buildings with self contained units will also pull in a lot more rental income.

Working with a mortgage broker who is experienced with obtaining financing for student housing investments can also go a long way in helping you receive a mortgage for your investments.

Finding a lender
Local credit unions and non-bank lenders are most likely to have an appetite for financing student housing investments – both residential and commercial. Non-bank lender First National Financial LP, for instance, will finance a commercial building (five or more units is considered commercial) for student housing purposes, but will discount the rent to market rates, since student housing tends to generate higher rent, says Barry Gidney, director of commercial mortgages at First National. If, for example, a building housed 40 units that each contained three bedrooms, each unit could generate $600 per room X 3 = $1,800. If, however, this same unit was rented out to a single family, the market rent would probably only be about $1,000 to $1,200 depending on the location of the building. The reason they discount the rent is to ensure the debt will be serviced by an investor even if the building has a higher vacancy rate at any given time.

First National would also take higher maintenance costs into consideration when financing a commercial student housing unit due to higher turnover and the fact that students are living there without supervision, which adds to the risk, he adds.

The investor must be experienced, have a high maintenance reserve, and ensure the building is safely constructed in order to be considered for financing, says Gidney. Even then, it’s not very often that lenders will reach beyond 75 per cent LTV for this type of venture. Because student housing is such a necessity in many cities across the country, Gidney believes politicians need to be lobbied in order to push CMHC to insure more of these commercial student housing investments. If the deal is not insured – also known as a conventional deal – investors are looking at only obtaining financing ranging from 40 per cent to 50 per cent LTV.

Up until about two years ago, CMHC’s guidelines were much more flexible when it came to student housing, and Gidney believes they could be loosened a bit to make room for experienced investors who can service the debt, and provide much-needed accommodations to student populations. The reason credit unions are willing to look at financing for student housing is that they have the local knowledge to understand the area, which can more easily set their minds at ease when it comes to risk.

If you would like to learn more about real estate investing please give me a call: Kris Krawiec Mortgage Agent 416-845-3745