Nawar Naji, a broker with Verico The Mortgage Wellness Group, lays out the case for a 10-year fixed rate mortgage. As this episode of Investor Insight reveals, those mortgages aren't necessarily for everyone, but can go a long way in benefiting buy-and-hold property investors. Flippers, beware, though.
Video transcript below:
Nawar Naji, Mortgage Broker, VERICO The Mortgage Wellness Group
Nawar Naji: In my opinion a real estate investor is a business owner and as a business owner, you want to take a long term approach to your business. So couple of things you have to consider is, fixing your cost over a long term and the second point is how to maximise your revenue. Based on where we are today with interest rates, I think it’s a great opportunity to take advantage of today’s below 4% 10 year term to fix your cost and protect the business owner from rising interest rates.
Because looking at data historically, the interest rate should normalise around 5 ½ to 6% and when I sit down with my clients to do a cash flow analysis, we always stress test their property at 6%. If it [cash holds] at 6, then there is definitely an opportunity to invest in that property.
So again going back having a mortgage for a 10 year period below 4% is a great way to protect the business owner from rising costs through the interest rates and to focus on maximising their revenue.
The 10 year is not a one size fits all. So it is critical to sit down upfront with the real estate investor and understand their long term goal. If they are planning to hold on to the property for 10 years or somewhere around that time frame, then it is an option. However, if they are planning to liquidate the property earlier than that, then this might not be a good option for them. Having said that, there are a few features built into the product to minimise the penalty. One is the product is portable.
So the investor can move that mortgage to another property as long as the sale and the purchase of those two properties is done within 120 days, as well as the penalty, the day after the 5th year anniversary is 3 months interest only.