Two is the magic number, according to seasoned author and investor Dalia Barsoum. Two questions, that is.
Should you paydown your mortgage faster on your income property? And, how important is interest rate to your success as an investor? Barsoum says these are the two most common questions that investors ask and need the right answers to ensure long-term success in real estate investing.
According to recent research by the Canada Mortgage and Housing Corporation (CMHC), more Canadians are planning on paying down their mortgages sooner.
“We believe that reducing your cost of lending (through lowering your interest cost) is something to consider regardless of the investment strategy you are following. This will help put more cash towards building equity in your investment property,” says Barsoum.
“If your focus is on maximizing short-term cash flow from your rental property, then a mortgage with stretched amortization, a low interest rate and regular payments, combined with deductible expenses, will help achieve that,” she adds.
Referencing the issue of interest rates, Barsoum warns that when reducing the cost of lending, investors should consider other factors, such as prepayment privileges.
“You call up your lending advisor and ask, ‘What’s your best five-year mortgage rate for a variable rate mortgage?’ and you get the answer prime -90, beating an earlier quote you received by five basis points. You then decide to move forward based on this great rate,” she says.
“However, if you have not enquired about and paid attention to the prepayment privileges in this case, you may be dealing with a product with a deep discounted rate but with restrictions on re-financing including your ability to do so during the mortgage term.”
Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate