Cracking the 4 Door Rule

“That rule has been in place with our bank for several months now,” said a Western mortgage associate with one of Canada’s largest players, speaking on condition of anonymity. “But there are factors that also help such as the individual equity the borrower has in each of the properties and the relationship that they have with their bank, so it’s not impossible to get financing on a fifth property.”

Investors from one end of the country to the next have railed against a four door rule essentially forcing lenders to turn down mortgage applicants with financing on four other existing properties. The move, largely brought into force over the last year, has limited residential acquisition for many industry players while encouraging many others to seek out financing from alternative lenders and vendors.

Still others are turning to joint-venture agreements as a way around the rule, while many are becoming incorporated entities and taking their loan applications to the commercial division of a bank. The move comes with higher costs, complain investors.

But those different options haven’t curbed investor ire over the four door rule and the Bankers Association.

“The only ‘rule’ banks and lenders should focus on is the quality of the security and client,” says Miles Godlonton, an investor and real estate broker. “I’ve been investing for 25 years and I have excellent relationships, but that hasn’t allowed me to get a loan with one of the major lenders. I don’t buy that they’re willing to bend the rules.”

He and others argue the mom-and-pop investor is most affected by the policy, with retirement income put in jeopardy.

“Forcing investors to buy through professional corporations submits us to more onerous steps to go through,” says Godlonton. “It forces us to pay higher rates both in interest rates and service charges, feeding the bank’s bottom line.”

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