Hello Hamilton Real Estate Investors in Hamilton Ontario!!
The question that comes up time and time again is “how do I come up with the 20% downpayment?” and “What is Home Equity Line of Credit (HELOC) and how does it work?”
We have a couple HELOC’s, one each on our principal residence and our previous home which is now an executive rental plus a few others on rental properties. What we’ve done is purchase investment properties where the 20% down came from the HELOC, and the rest was financed using traditional variable rate mortgages with five year terms. As time passed, the five year terms expired, and our investments appreciated, we switched them over to HELOC’s and used the built up equity to purchase more investment property. We essentially had our investment properties make the downpayment for other properties. Did I mention I LOVE the power of leverage in real estate investing? Well I DO! 🙂 Almost equally awesome is how the interest paid on those downpayments is an expenses against the rental income 🙂 Thank you CRA!! (I’m not an accountant so make sure you seek professional advice!! Don’t have an accountant, go to the free tab and get my rolodex of Hamilton professionals)
How do HELOC’s work? I have a general understanding but I’m in the middle of cleaning my office so I’ll have to delegate this one to a mortgage professional but not any mortgage professional. One who invests in Hamilton and works pretty much exclusively with investors and his name is Kevin Boughen. Take it away Kevin!!
The Power of Re-advancing Mortgages
by Kevin Boughen, Mortgage Broker, www.InvestorMortgages.ca
The re-advancing mortgage combines a traditional mortgage with a secured home equity line of credit. The mortgage component can have either a fixed or variable interest rate with the amortization of your choice, while the secured line of credit is fully open with interest only minimum payments.
The key advantage to this product is that when you pay down principle on the mortgage component, either through regular monthly mortgage payments, or, lump sum prepayments, the limit on the secured line increases by the same amount. This re-advancing feature is not available with standalone mortgage and line of credit combinations.
Here are some other investor friendly features of the secured line of credit component;
- Minimum monthly payments are interest only and are based on the balance in use only, if you are not using any of the funds, there are no payments due
- It is completely open, you can pay the entire balance, or, any portion thereof, at any time without any penalty
- You can pay down the balance and redraw funds as often as you like, the limit does not decrease, in fact the limit increase as principle is being paid on the mortgage component
- The secured line can be used as proof of down payment for future investment purposes
- Some Lenders allow you to divide the secured line into smaller separate lines, allowing you to easily and accurately segment funds used for personal use and those used for investment purposes where the interest is tax deductable
Although re-advancing mortgages are available through many different Lenders, not all Banks have this product. A licensed independent Broker specialized in investment mortgages, will be able to evaluate your unique situation and recommend the Lender and product best suited for you. [Erwin here – just ask Kevin, that’s what I do]
Kevin Boughen is a Licensed Mortgage Broker and active real estate investor [in Hamilton Ontario :)]. He purchased his first investment property in 1995 and continues to buy and hold investment properties. He acquired his Mortgage Broker license in 1999 and his mortgage business is now entirely focused on assisting real estate investors [including numerous, satisfied clients of mine] achieve their real estate investment goals through careful mortgage planning. Kevin can be reached at www.InvestorMortgages.ca
Hope that helps! Till next time – happy investing everyone!!
Erwin | MrHamilton.ca
PS: If you would like to attend a free training class on investing in residential real estate click here.
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