Interest Only Mortgage
Interest only mortgages have been in the news and have already been widely available in the US. They have finally come to Canada. A few lenders are just starting to test the waters in Canada with this new product. Here are a few real-life examples from current clients that have used the product.
Client 2438
Johnny approached us a few weeks ago looking to purchase a rental property in Calgary. With great credit and good stable employment, Johnny was able to put 25% down. The mortgage (P&I) payment was going to be $1480 per month on the rental property. Unfortunately, Johnny believed that he would only be able to collect $1500 in rent for the property which would not be enough to cover mortgage payments and property tax. This is a common situation faced by our clients in many major city centers in Canada. Enter the interest only mortgage. We introduced the interest only mortgage product to Johnny for his rental property purchase and described how an interest only mortgage would reduce his monthly mortgage payment to $1,071. The interest rate is set at prime minus 0.8 which is a great rate for any mortgage. An interest only mortgage makes a lot of sense on a rental purchase because it not only reduces the monthly expense but also maximizes the tax advantages of a rental property. In the end, Johnny was able to buy a rental property which was likely to appreciate in value and provide positive cash flow.
Client 2228
Dave is an independent contractor who makes good money but his income while predictable, is not consistent. Many months go by when he earns nothing and then suddenly he earns a big chuck of cash. Dave wanted a mortgage that has the flexibility to match his income without sacrificing a really great rate. Traditionally, we would have offered him a secured line of credit, which offers total flexibility but it comes at a price. Most mortgage rates are set well below prime but a secured line of credit is often at prime. The difference can equate to hundreds of dollars every month. Enter the interest only mortgage. The interest only mortgage is perfect for Dave because he was able to get the great rate of prime minus 0.8% and when he receives his big chunk of cash he is able to make large lump sum payments towards his principle whenever he wants. Dave jumped on the interest only mortgage as a way to pay minimal monthly amounts while still paying off his mortgage in 25 years by making large lump sum payments.
Dan Eisner
www.truenorthmortgage.ca
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