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20 Nov

Most common roadblocks for investment property mortgages, Part 3


Posted by: Aneta Zimnicki

In my previous blog , I discussed part one of the most common roadblocks for investment property mortgages.  In no particular order, the following is the third of my series of the 16 most common roadblocks for investment property mortgages.  The list is based on current lenders’ policies (in general, ‘A lenders‘), and, of course, like all policies, they are always subject to change.  Hopefully we will see in the future some changes in the policies in favour of the real estate investor.  This list is more applicable to individuals who don’t have hundreds of properties and who are applying for residential mortgages (5plex or less).

9. Some lenders feel rental property is riskier, so they may require a lower amortization for investment property, such as 25 years.  Today 30 year amortization is the common maximum, (some lenders that offer 35  years, but only on owner-occupied).  Investors are interested in maximizing cashflow (always good to have the extra cashflow for repairs/maintenance and vacancy slush fund), a shorter amortization limits that flexibility.

10. Since investment property mortgages are a very small part of the lender’s business, some limit the mortgage product availability, for example only 5 year term. This in turn, limits your flexibility. Very rarely these day will you see a HELOC (home equity line of credit) allowed on an investment property, that product feature was a nice bonus, back in the days when it was more readily available.

11. Again to mitigate the perceived risk, lenders may add a premium to the interest rate for rental property, for example 0.20%, so your monthly mortgage payments will be slightly higher.  Or, lenders may ask for applicant to now pay the mortgage insurance premium (fee is added to the mortgage loan), that used to be covered by the lender in the past.

12. Your investment property portfolio does not cashflow and eats into your income.  This can be due to a number of reasons: poor rents, vacancy, high expenses, speculative investment (hanging on for the appreciation) and poor mortgage structuring (ie. high monthly mortgage payments).

Stay tuned for part 4 of the list, in my next blog…..

A mortgage broker specializing in investment mortgage is familiar with these (ever-changing)  policies and can help you navigate through these roadblocks with proper mortgage planning.  Trying to figure all this out yourself can be overwhelming, instead use the time and energy to work on being the superstar real estate investor, finding and evaluating properties and attracting joint venture partners.