Mortgage Renewal Blues
In the next two years, it’s estimated that up to 45% of all Canadian mortgages are up for renewal. This offers a unique challenge to investors, who may find that they can no longer cashflow their rentals. Here are several things to consider when your investment property mortgage is up for renewal.
Re-amortize. Let’s say you purchased your rental property five years ago, and you’ve dutifully made your payments on time. Now, you’re concerned about your ability to cashflow at the higher rates being offered. One option is to extend the amortization. Going from an amortization of 25 years to 30 years, provided the rate stays the same, will lower your payment by 7%. That can make all of the difference in the world to your cashflow.
Take a two to four year fixed term. Most Canadians by default flock to the five year fixed. It’s safe and conservative. With the very real possibility that we’ve hit a peak in rates, taking a shorter term, even at a higher rate, may make sense. You are gambling that rates will be lower in the next couple of years. But it’s a gamble that my pay off.
Take a variable rate. How much risk are you willing to tolerate? If you genuinely believe that we’ve hit a rate peak, why not ride the prime rate down as far as the government will lower it?
Ask your lender about an interest option. Some lenders offer interest only mortgages. HELOCs are also interest only. They may be offered at a higher rate than a fixed term, but may result in better cashflow for you.
The moral of the story is to ask more questions! Your renewal is a great time to corner your lender, and find out all of the options that are available to you. Don’t just sign the renewal, but shop around to make certain you are getting the best rates and terms available.
-Mike Schroeder
One Link Mortgage & Financial
