If you’ve come into some extra money or have saved up a large sum over the years, a great way to invest that money is with an additional property. Instead of purchasing a vacation home, which may not generate any revenue, an investment property could be a good option for you.
You probably already have a mortgage on your principal residence. However, investment property mortgages differ because lenders consider them risky. Generally, when people take out more than one mortgage, lenders worry about default and you need to show them that you can handle the financial responsibilities of another loan.
Investment property mortgages are used to finance properties that have 1-4 units. This kind of mortgage comes with higher interest rates due to the risk involved to the lender. Though, mortgage insurance is available and can bring your rate down significantly. Not all lenders require this insurance.
Buildings with five or more units are considered commercial and you will not be able to take out an investment property mortgage on it. For buildings with 5+ units, a commercial mortgage is required.
This is tricky because you can’t charge your tenants a ludicrous amount of rent just so you can pay off your mortgage and pocket the rest to live on. Investment properties are actually what they say they are: an investment. Over time the property will grow in value and then you can start making money.
If you do not plan on living in one of the units of your investment property, your down payment should be at least 20%. On the other hand, if your property will be owner-occupied, your down payment can be slightly lower and hover between 5-10%. Whether or not you prefer to have an owner-occupied property or not will only affect your down payment percentage, not your mortgage rate.
Unfortunately, not all lenders offer this type of mortgage. For this reason, you should meet with a mortgage broker. A broker will help you find a lender that does offer investment property mortgages because they’ve built relationships with various lenders. Brokers are in your corner basically vouching for your financial stability, telling lenders that you are an ideal candidate for an investment property mortgage because you will not default on your loan.Back
Canada’s mortgage website
Your home is your most valuable asset. It is probably the single largest investment you will make in your lifetime. Your home is more than a place to rest your head and raise a family. Your home contains equity. It is a treasured resource and in some cases, can even be used as an ATM (aka cash back mortgages and HELOCs – don’t worry we’ll get there).
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