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Mortgage 25 or 30 years

Discussion in 'Real Estate Discussion' started by Mr.Montreal, Jul 25, 2017.

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Mortgage, 25 years or 30 years?

  1. 25 years

    1 vote(s)
    25.0%
  2. 30 years

    3 vote(s)
    75.0%
  1. Mr.Montreal
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    Mr.Montreal New Member Registered

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    Hello,

    I just bought my first student rental property 6 months ago. I chose a 30 year mortgage because my payments were lower than with a 25 year mortgage. I've heard and read a lot of comments about how you should get a 25 year mortgage. I know I would pay less interest and more principal but saving money right away seems more attractive.
    I would like to hear your thoughts. Which do you prefer and why?
     
  2. Myra
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    Myra New Member REIN Member

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    We did the same with our last property and are paying slightly higher interest, but payments are lower and that's important for us right now.
     
  3. kfort
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    kfort Well-Known Member REIN Member

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    If your goals are acquiring more be mindful of your DCR. If you've got all you desire,... even then, pre-payments are still an option on the 30yr amm.
     
  4. Mr.Montreal
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    Mr.Montreal New Member Registered

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    Thank you for the replies,
    My goal is definitely to acquire other properties as soon as I can. Therefore, 30 years is better because it would reduce my mortgage payments which would in turn make my DCR higher?
     
  5. Matt Crowley
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    Matt Crowley Well-Known Member Registered

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    Depends on strategy... interest only makes sense for some strategies as well.

    I choose 25 year right now. The money you put down on your mortgage earns the same rate as the mortgage. (Assume values flat). If my payments are higher now on a 25 year amortization then at 5 year renewal I'll likely have higher interest rates but a larger principal paid down meaning those extra dollars of PPD will be earning the higher interest rate in the future. I'm young and have a good system set up for long term hold with no personal PM work and property feeds itself so no reason I can't hold for many years.
     
  6. Vine Group
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    Vine Group Active Member REIN Member

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    If the terms and rate are the same for 25 years or 30 years amortization, I always recommend the 30 years. First, you should be able to accelerate your payments and reduce the amortization to 25 years in the future. This gives you the ability to manage cashflow. Second, as your portfolio grows and you will rely on DCR lenders to be able to get financing. The DCR on a 3o year amortization is better than 25 years. So, it could be the difference of qualifying for future mortgages.
     
    KhoaN and Marnie like this.
  7. Londonworks
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    Londonworks New Member Registered

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    One more thing to mention is that a 30y amortization will carry a premium, now that these mortgages are considered "uninsurable" (after the recent round of legislation imposed last year). Not that it matters that much in most cases, as most rentals would be uninsurable anyways, but those with an owner occupied and rental (say, a duplex or triplex where you live in one of the units) you could still qualify for an insurable mortgage and get lower rates, however the max amortization would be limited to 25y. Just requesting the 30y amortization would make that same mortgage uninsurable, thus increasing the rate by some 20bps to 30bps.
     
  8. Matt Crowley
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    Matt Crowley Well-Known Member Registered

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    High LTV (anything more than 60% LTV) carries unique challenges. As an investor in major Canadian cities right now, yields range 3.5% - 6.5%. These cap rates are before cap ex (roof replacement, appliances, driveways, ect). Typically, these costs are in the range of 1% - 1.5% of cost of property so your going-in yield is effectively 2% on the low side up to 5.5% on the high side. If debt is at 3%, then anyone buying a property for less than a 4% gross going-in yield (before the cap-ex drag) has negative leverage.

    Be careful not to overextend….

    Your mortgage should not be making more money than the underlying asset. I see underwater deals often often often on the site, tells me that we are in for a cleanse and I hope those reading this are not in that crowd.

    Just because you buy a home as an “investment” remember that you playing in the “consumption” market. A lot of buyers are thinking they are investing in their future but actually they are just overconsuming and buying a home that is at historic multiples of price to income.

    A final note, take a walk into your local Canadian bookstore into the investing section. Look at the concentration of books on making money in Canadian real estate, becoming a real estate millionaire, ect. compared to the books on stock investing, bond investing. What looked like an investment boom in housing may just be a consumption boom.
     
  9. Wilfred Harris
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    Wilfred Harris New Member Registered

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    Hi there, recently we shifted to the new city. I want to renovate my home and planning to buy a mortgage while discussing with my friend, he suggested me to visit moving companies queens for mortgage loan who provided him moving and mortgage service when he was shifted to his new house. Any suggestions?
     

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