Help! I own a rental property, and rates are sky-high

It can be a frightening time for real estate investors.  Between rising interest rates, inflation, and frozen rent, it’s becoming more difficult to cashflow on rental properties.  Instead of focusing on rate, which is outside of our control, here are other factors to consider.

1.     What about cashflow? - Yes, your rate may be up.  However, it’s imperative you look at your monthly expenses.  For example, if you have a low mortgage payment, but are carrying a hefty credit card balance, refinancing your home at a higher rate may put you into a better cashflow situation.  Plus, you’ll be paying down your principal each month instead of just interest.

2.     Re-amortize or interest only payments – What’s more important to you?  Building equity in your property, or cashflow?  If you’re concerned about cashflow, then you may want to re-amortize your rental.  In fact, some lenders will allow for up to a 40 year amortization!  Or you can switch to an interest only mortgage product, allowing you to truly maximize your cashflow.

3.     Renewing into a two-to-four-year term.  Banks and brokers tend to automatically put people into a five-year term.  A shorter term may be in your best interest.  If you’re planning to move in the next several years, a shorter term may save you thousands of dollars in penalties.  Or you may think that rates will drop in the coming years.  A shorter term will allow you to take advantage of (potentially) lower future rates.

4.     Do you need to renovate your property?  - I’ve seen people refinance their home, and then put renovations on a credit card!  Did you know some lenders will provide you with additional funds for renovating?  This can be a cost-effective way to upgrade your property.

5.     Are there CRA or property tax arrears? – If you are behind on taxes, the government can foreclose on your property to obtain the tax balance owing.  If you need money to bring your taxes current, please discuss with your mortgage professional.

6.     HELOC’s or Second Mortgages – If you’re in a cash crunch, but have years left on a low rate, it may make more sense to keep your current mortgage.  Instead, ask your current lender if you’d qualify to add a HELOC to it.  If they say no, we may have access to alternative lenders who can add a second mortgage, helping you to preserve that low rate.

KEY TAKEAWAY!  Don’t just sign on the dotted line for your mortgage renewal.  Ask questions.  Look at all your options.  Make the decision that’s best for your business. 

Written by Mike Schroeder, Mortgage Architects