With round 4 of the mortgage rules taking effect on November 1, 2012, mortgage qualification for business owners got tougher. Don't despair, since there is still hope for a business owner to get their last mortgage....ever.As you are aware, the new mortgage rules reduce the maximum mortgage to 65% of home value for business owners who use a stated income (income that is not verified by Canada Revenue Agency documents). However, as previously explained in a blog post regarding business owners mortgage options, a mortgage up to 90% for a purchase or 80% for a refinance can be obtained.

Business Owners Mortgage....The Last One

Many homeowners choose a 5 year mortgage term over other terms, however in today's economy the difference between 5 year and 10 year fixed mortgage has never been this small (2.99% vs 3.79% at the time of writing this blog post). The 10 year fixed mortgage provides the following to a business owner:

Stability and security of fixed cost of borrowing over a 10 year period
Not worrying about qualifying for a mortgage in 5 years time frame and providing pages and pages of financial statements
Protection from rising interest at renewal time
Freedom to focus on growing the business, being profitable and tax reduction strategies

The chart below compares 2 options for a $350,000 mortgage: 2 5 year fixed mortgage terms and a 10 year fixed mortgage term

To summarize, the above chart shows if one believes mortgage interest rates in early 2018 will be higher than 4.75%, the 10 year fixed mortgage is a viable option. As difficult as it is to predict where mortgage rates will be in the future, why would anyone want to renew at higher than 3.79%-3.89% interest rate in 5 years time?

This mortgage option powered by the inflation hedge mortgage strategy (explained in this video) provide a solid plan to achieve mortgage freedom.

To discuss your mortgage options whether you are buying a home, an investment property or renewing your mortgage, please contact me.

Lately, I have been dealing with an increasing number of clients who are deciding not to sell their home. They are choosing to keep their existing property by turning in it into an investment property and using the proceeds of the refinance to buy a home. Since the financial credit crunch in late 2008, more Canadians are skeptical about the markets, are worried about having enough to retire and are looking for alternative ways to diversify their investments.A greater number of homeowners, after reviewing the numbers, are deciding to refinance their existing home up to 80% of its current market value, take advantage of today's historic low interest rates and rent the property. Here is real example that I did for a client who owns a condo in downtown Toronto.

Condo value: $350,000 Mortgage amount: $280,000 (80% loan to value) Mortgage amortization: 30 years Mortgage interest rate: 3.29% Mortgage term: 5 years Annual appreciation: 2%

There are two items to pay attention to in the above chart: 1/ initial equity is $70,000 and after 5 years based on 2% capital appreciation and utilizing the inflation hedge mortgage strategy, 2/home equity is at $135,771. By having the tenant paydown the mortgage and adjusting the mortgage payment gradually for higher interest rate environment, the home owner almost doubles their money in 5 years. Imagine the financial freedom a fully paid off investment property would create.

If you are interested in finding out how to turn your current home into an investment property and use your home equity to buy a home, please contact me.