Published: May 30, 2017 • Last updated: January 6, 2021 at 7:03 am
AskRoss on all your biggest questions about rental properties
Dear Ross, can I buy an investment property with a small down payment, like say five or ten percent only?
No, you are going to need at least a twenty percent down payment if you want to purchase an investment property. Not many of us have that kind of money sitting in savings accounts though.If you are already a homeowner, chances are you have enjoyed some pretty healthy growth in the value of your home in the past year or two. Consider tapping into your #equity and sourcing the rental property down payment there. Click To Tweet
Dear Ross, if I buy a house and I plan to rent out the basement to help with my bills, will the mortgage lenders qualify me for a larger mortgage because of the extra rental income?
The reality is most such homes around the GTA do not come with legal, conforming rental units, retrofitted to the Fire Code. As such, their income potential is irrelevant to your mortgage lender. It’s different if you are buying a legal duplex, triplex or quadplex, so be sure you ask your real estate agent whether or not the property you wish to buy conforms to code.
Dear Ross, if we buy a rental property, will my mortgage interest rate be as good as the one we have on our family home?
When it comes to rental properties some lenders factor in so many variables, we need all our fingers and toes to figure out all the possibilities. But to answer your question, no, the mortgage interest rate on a rental property will typically be a touch higher. For example:
- Some lenders charge a rate premium if the amortization period is greater than 25 years
- Some lenders charge a rate premium if the loan to value ratio is greater than 60%, others if greater than 65%
- Some lenders insure such mortgages and may pass on the premium to the client (yes even though the down payment is 20% or more)
- For some lenders, best rates are available if there are two to four units in the subject property. (for example, a legal duplex, triplex, or quadplex)
- Sometimes we brokers (or branch personnel) will try to reduce the rate further by “buying down the rate”
Do you have any questions on Rental Properties for us? AskRoss how he can help.
Ross Taylor is recognized by his peers as one of Canada's pre-eminent difficult mortgage specialists. His ASKROSS blog and column in Canadian Mortgage Trends are focused on the intersection between mortgage financing and personal credit.
With unique dual certification as a licensed credit counselor and mortgage agent, Ross's insights are valued by mortgage professionals and homebuyers alike.
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