Mortgage Rule Changes Affect Investors

[DonCampbell]

As suspected and confirmed, the government of Canada has made head way to change the mortgage rules in Canada to tide, what they believe is too much speculation in the Toronto and Vancouver markets.

We are RIGHT NOW analyzing the changes to see where the opportunities arise, the unintended consequences of the actions and most importantly how it will affect you the investor. The truth is that there will be hundreds of opinions, with many people weighing in on these changes with little or no real analysis... just raw emotions (most based around fear). Our measured analysis will be posted here in the next day or so after we have spoken to all of the insiders, analysts and have got our leading researchers on the task.

Well, as discussed at the last 2 REIN Workshops, REIN Members are not even remotely surprised that these changes came (rather than a large interest rate jump) and most took action steps to take advantage of the CURRENT rules before the changes become law. REIN members who took the suggested actions at the REIN Workshops have already analyzed their portfolios, worked on upcoming renewals (under the current regulations) and have prepped as best they can. So congratulations on being leaders, but more importantly, congratulations on understanding that being a real estate investor means MANAGING your business in an ongoing fashion... not passively responding to changes.

If you haven't done so, here are the first few steps to take today as the new regulations do not take effect until April 19th so there is a window of opportunity for you to work with:

1. Analyze your current residential portfolio, see what mortgages are coming due in the next 1 - 6 months and work with a PK approved broker to see whether it makes sense to renew/refinance under the current regulations. Interest rates remain very low now. BUT GET ON IT, as the great brokers will be getting very busy in the next couple of weeks.

2. Work to close any purchases before April 15th so you can use the current regulations.

3. NOW, more than ever it is important to learn how to use the RRSP mortgage strategies we discussed at the last REIN Workshops (in Western Canada). For investors, this strategy will allow much more control over your portfolio, while providing others with tremendous returns on within their RRSPs. It is so important that I have included the overview presentation by expert Greg Habstritt below in this post:




4. Get to the upcoming ACRE Workshop in Edmonton March 12 - 14th as we will be having a whole new section on how to work with these new regulations -- what types of properties will see an increase in demand, and which will see a softening. Here is the link to register, and if you are a REIN Member, remember I pay your full tuition so you attend for FREE but only if you are pre-registered (myREINspace.com visitors receive a deep discount)

Non-REIN Members click here to register at a discount

REIN Members call the office at 1-888-824-7346 or email REIN Office to grab one of the limited Members seats remaining

Watch this space (as well as my new twitter feed @DonRCampbell) for the release of ongoing analysis. REIN Members, log into the Members private section to see, and take advantage of the analysis first.

Yes, there are opportunities hidden in these changes, but there are also unintended consequences. So stay informed, and stay out of the emotional responses that will be surrounding these changes!

See you soon!

 

[RussellWestcott]

Mortgage Change Research Continues


I had a brief conversation with Peter Kinch last night, and he has been working very hard in teh backgroud, with his top level contacts at the banks and CMHC, to uncover the truth behind these changes. As always, the media have contact him (as well as Don) to give a clear analysis and you will find the CTV interview below. Of course he is saving the great stuff for the upcoming REIN workshops and ACRE Event (March 12 - 14).

However, I suggest you read the post above about what actions to take TODAY (don't wait - see why in the post below this one from Don R. Campbell). Now is the time to be a pro-active owner.

Watch this clip from his interview:



The Canadian Mortgage Rules are changing… if you do not know how to adapt to these the changes you will be increaseing your risk, with zero increase in return. If for no other reason, that one segment of Peter & Don detailing how they will be using the new rules to their advantage is worth attending the special ACRE™ program in Edmonton. Almost half a day will be spent diving into the new rules and all the strategies on how to work with the banks.

Click here for the details…

Remember: REIN Members who are PRE-REGISTERED have their tuition paid for them so they attend FREE as another bonus to their Membership. Become a Member today and start being in the know.

 

[DonCampbell]

‘Peeling the onion’ on the new Canadian Mortgage Rule Changes that Jim Flaherty announced Feb 2010. What are the intended and unintended consequences of these announcements and what are the details behind the very public announcement? Well they are many and varied.Let’s start at the beginning with a big (sarcastic) “Thank You Very Much” to all of those people who insist on being speculators by lining up around the block to buy pre-built condos. That is who has brought these changes on to the country’s real investors.

Those who speculate on pre-built condos are just that; speculators. You can equate them to those who speculate on the futures markets around the world. Buying at ‘today’s’ price hoping that the values will be higher in the future so they can sell on. Pork Bellies, Wheat and pre-built condos. That is speculation, not investing. And yes, money can be made doing it if you time it right, know exactly what you are doing and have a “Plan B” when it doesn’t work out. However the downside risk is tremendous as many of these speculators discovered when values took a dip and they couldn’t sell or finance their purchases in 2009.

Diminishing The Line-Ups

These frenzied line-ups are exactly the situations the new ‘investor mortgage’ rule changes are designed to diminish. Yet, the unintended consequences are many and varied. (For instance, I wouldn’t want to be a renter in 2011 and beyond as supply of rental units decreases and demand increases. More analysis on this in the future).

Those also at the effect will be those of us who purchase properties in order to hold for many years and provide rental housing in markets that no rental specific housing is being built. Sadly, under these new rules, we are being painted by the same brush as the speculators.

Lots of Opportunity

That being said, the informed investor knows that within change comes opportunity. This is the first in a many part series on what the changes REALLY are, what is behind them, what details aren’t being discussed and most importantly how to use them to your advantage.

Let’s jump into some of the obvious and less obvious effects of these changes:

1. TDSR RULES CHANGE: The most important (yet not talked about in the media) change is to the CMHC requirements for qualification based on Total Debt Service Ratio calculation. Revised TDSR calculation: now only 50% of the gross rental income from the subject property may be included in the borrower's gross annual income for the purpose of calculating the borrower's TDSR.

Previously, 80% of the gross rental income from all properties was deducted from the total household debt service cost to calculate TDSR. This will be the most dramatic change for investors.

A 50% add-back is significantly less favourable to an investor than an 80% offset. Simply stated if you currently own more than three rental properties, and you are going to try for CMHC financing it will be VERY difficult to qualify for a mortgage using only 50% of the rental income from your portfolio. That is why we are developing solutions for investors and sharing them in great detail. (for instance the use of RRSP financing and Joint Venture relationships will be even more critical than before). This is like going back in time a few years where the informed WIN and the uninformed hit a brick wall.

It is more imperative than ever before to take a big-picture overview of your portfolio and strategically arrange mortgages with the appropriate lenders. For instance, don’t use a ‘investor friendly’ lender to do your personal residence, that would just waste cap room. That is why we are completely revamping the Edmonton ACRE financing portion – and it will be the most important part of the whole weekend (not an overstatement). Whether you have zero properties or 50+ you’ll leave there with actions steps that suite YOUR requirements. We have purposely made the decision to make this a smaller ACRE so you can get more hands-on one-on-one assistance in this critical matter.2. Increased rents coming. One of the unintended consequences of these rules will be the decrease in the number of rental units hitting the market over the coming 5 years. Currently it does not make economic sense in most regions of the country to build rental specific larger buildings yet the need for rental housing continues to grow (a direct effect of building costs and rent controls). This gap has been filled by investors who have purchased homes, condos, duplexes etc as long term investments. This lack of supply will begin to hit the market at the exact wrong time for renters, as interest rates will have moved upwards (making it more difficult for them to turn into home-owners) and inflation will be back at or above normal (forcing annual rent increases upwards in rent control provinces. Long-term investors, who manage their businesses pro-actively will be the big winners in this scenario. It may not feel like you win under these new rules initially, however watch how supply & demand issues push up not only your values but also your cash flow.

3. Increased Mortgage Fraud. Well, they thought they had issues with mortgage fraud before... sadly these rule changes will push the unsophisticated, uninformed or unscrupulous people into playing in very grey areas just to get mortgages approved. The consequence of this is that as mortgage fraud increases, other rules will change that will affect investors. Watch out for ‘mortgage brokers’ who say they have found loop-holes to get around certain rules. One example you’ll hear will be recommendations to say that you are moving in (when it is obvious your intention is not to do so) just to get it approved at a lower down payment. And believe me they will pitch you very compelling reasons to do so (others are doing it, here’s a ‘legal’ opinion on what constitutes moving in, just stay the weekend and it is moving in) all of which are outright fraud. The only person at the effect when this fraud gets revealed will be you. DO NOT FALL INTO THIS TEMTATION!

4. Increased Multi-Family investing. It has always been easier to arrange financing for multi-family properties (6 units and up) because the properties are treated like the business that they are. The financial institutions have analyzed the properties based on their ability to carry themselves, wherein single-family purchases the borrow is more scrutinized than the property. The rules announced have so far not covered multi-family properties and therefore long-term investors will be moving even more quickly into multi-family purchases. This will NOT add to the number of rental properties (as these buildings already are rental properties) and therefore will not affect #2 above. Watch for our F4 Multi-Family Investment strategies to be updated to give you an advantage in this very profitable area of investing.

There are many more intended and unintended consequences to these changes. As our research continues into what is REAL, we’ll post it in this thread. I suggest that you click on the orange RSS feed link at the bottom of this page so you are automatically sent the updates as they occur.

Please ensure you read the top post in this thread for immediate action steps you should be taking TODAY, not tomorrow. Now is the time to be pro-active in your investing business (whether you own 1 or 50+ properties). Although these changes are slated to take place in April 2010, don’t be surprised if the banks start changing their rules this week in anticipation. That is what they usually do.

Be prepared, be pro-active and choose to win.>I cannot stress enough how important this upcoming ACRE event is with all of these changes, call Candace or Amber to grab a seat for you and your guests. This is not a sales pitch, these changes are a turning point in Canadian real estate investing - pro-active and informed investors have a major opportunity to jump ahead of the pack in the next 12 months and our job at the ACRE weekend March 13th and 14th is to ensure those in attendance are the ones leading the pack.

Here's the link to find out more (and get your and your guests a discount):

http://www.realestateinvestingincanada.com/tabid/59/p-25-ACRE-System-Live.aspx ://http://www.realestateinvestingincan...stem-Live.aspx

 

[fumbrunner]

QUOTE (DonCampbell @ Feb 22 2010, 11:52 AM)
1. TDSR RULES CHANGE: The most important (yet not talked about in the media) change is to the CMHC requirements for qualification based on Total Debt Service Ratio calculation. Revised TDSR calculation: now only 50% of the gross rental income from the subject property may be included in the borrower's gross annual income for the purpose of calculating the borrower's TDSR.



Previously, 80% of the gross rental income from all properties was deducted from the total household debt service cost to calculate TDSR. This will be the most dramatic change for investors.



A 50% add-back is significantly less favourable to an investor than an 80% offset. Simply stated if you currently own more than three rental properties, and you are going to try for CMHC financing it will be VERY difficult to qualify for a mortgage using only 50% of the rental income from your portfolio. That is why we are developing solutions for investors and sharing them in great detail. (for instance the use of RRSP financing and Joint Venture relationships will be even more critical than before). This is like going back in time a few years where the informed WIN and the uninformed hit a brick wall.



It is more imperative than ever before to take a big-picture overview of your portfolio and strategically arrange mortgages with the appropriate lenders. For instance, don't use a 'investor friendly' lender to do your personal residence, that would just waste cap room. That is why we are completely revamping the Edmonton ACRE financing portion ` and it will be the most important part of the whole weekend (not an overstatement). Whether you have zero properties or 50+ you'll leave there with actions steps that suite YOUR requirements. We have purposely made the decision to make this a smaller ACRE so you can get more hands-on one-on-one assistance in this critical matter.




Don, I agree 100% that the TDS changes is the change that will affect people the most and is not being talked about nearly enough.



Can you comment in more detail on how the TDS will now be calculated? How will CMHC treat expenses and income from properties other than the subject one? If they have positive cashflow, will they not be incorporated into the calculation? Or if they are, how? How are expenses treated? How is revenue treated? I would love to see a visual representation of the formula, similar to what they did with the old one.



I read somewhere that gross income will be determined by your notice of assessment and rental income would be included in that. If that is the case, will the PITH calculations include only your principal residence and the subject property? Or will they use all obiligations of PITH from all properties? If it is the latter, then things become problematic, particularly if you show 0 of close to 0 for your rental income. How will CCA come into play?



Any insight would be helpful.

 

[housingrental]

Is the ACRE event the same content in all locations during the same year?
Is there a summary page of changes to the ACRE even from last year?

 

[RussellWestcott]

Courtesy of Peter Kinch, Canadian Best-Selling author, and Canada`s #1 residential mortgage broker for 2009. Read the details of Peter`s analysis of the new mortgage changesNew Mortgage Rules:
Major Impact or Much Ado About Nothing?

One year ago today, Canadians were worried about the greatest recession since the great depression. Housing values would drop so low we will all lose our life savings. Everything was doom and gloom.

What a difference a year makes. No only did the housing market rebound - it came roaring back with a vengeance as if the recession had never occurred. So much so, in fact that at the end of December Canada`s Finance Minister Jim Flaherty did an interview with CTV in which he expressed concern over the sharp rise in housing values and fears of a pending housing bubble. He made it clear that the government had tools at their disposal other than tinkering with interest rates that could be used if necessary to slow down an `over-heated` housing market. The tools he was referring to were changing the maximum amortization for 35 years down to 25, and changing the minimum down payment for CMHC insured mortgages from 5% to 10%. At the time many economists expressed concerns that an over-reaction to the current market conditions would dampen the overall economy and hinder our economic recovery. They warned the government not to over-correct a `hypothetical problem` in reaction to `unwarranted fears`.

On the other hand, there were many voices in the market sounding the alarm - `Have we not learned from lessons of one year ago?` Many felt that Canadians were getting right back into the same trap of using their homes like an ATM machine and were setting themselves up for disaster the moment interest rates start to rise. Surely the only prudent thing to do would be for the government to step in and protect us from ourselves - not to mention those greedy bankers who are once again offering us borrowing options that allow us to borrow with reckless abandon - at least that`s what some would have us think.

So what`s the truth? Well as always it lies somewhere in the middle. The fact is, interest rates must rise - not if, but when and by how much how fast. When this happens will a large percentage of Canadian homeowners be caught in variable rate mortgages paying only 2% interest only to find that their interest rate is now 5%. If that were to happen, would a larger percentage of those homeowners be in the position of no longer being able to pay for their mortgage. Would this trigger a mass sell off, thus resulting in an imbalance of the supply and demand equation, ultimately resulting in plunging home values - thus triggering the aforementioned dreaded `burst of the housing bubble?`

A fair question and one that many were asking and the government felt compelled to address. The result - the February 17th announcement of 3 new rule changes to government insured mortgages (read CMHC) aimed specifically at addressing these concerns. But the real question is; did they address legitimate concerns or was it simply a case of paying lip service to a vocal minority for the sake of good optics?

Let`s take a look at the three rule changes and analyze what they really mean to you:

Any borrower who chooses a short-term mortgage (1 - 3 years or a VRM) must now qualify at the 5 year rate in order to get a CMHC insured mortgage.i> Result: Negligible: the fact is that most lenders already require that anyone taking a variable rate mortgage must qualify at the `3 year posted rate`. What`s of interest is that the government announcement did not distinguish whether the 5 year rate is a a`posted rate` or `discounted rate`. The difference is about 1.5%. The irony is that the current 3 year posted rate is higher than the 5 year discounted rate, so if the government rule requires that you qualify at the 5 year discounted rate, this could actually serve to `relax` the rule not strengthen it. In addition to that, recent surveys indicate that as much as 70%of Canadians already choose fix rate long-term mortgages.
Bottom Line:

Great move regardless. It is practical and imperative that anyone taking a variable rate mortgage today factor in a 3% increase in rates over the next 2 to 3 years. I still believe there are huge savings to be had if you take a variable today, but only if you increase your current payments to match the current discounted 5 year rate. In dong so, you will accomplish two things:

[list type=decimal][*]You will accelerate the rate at which you pay off your mortgage, thus reducing your principal mortgage balance at the time of renewal. This will help to negate the impact of an increase in rates at that time.You will adjust your family budget today to the inevitable higher rates in the future - thus avoiding `payment shock` to your budget[/list type=decimal]Smart and prudent - but will it achieve the effect of helping to cool off the housing market and slow things down? Not at all - this one is purely optics.

The maximum amount you can refinance your home has been lowered from 95% to 90%.

Result:

Again this one is negligible. Smart move by the government to make mandatory what should be common sense. The only reason anyone would leverage their residence up to 95% would be to pay off high interest credit card debt with the extremely low interest mortgage debt. Others may want to simply access as much money as they can at these historically low rates in hopes of generating a greater return in the market. Either way, it is extremely imprudent for anyone to over leverage their principal residence. Whether there is a bubble or not, it certainly doesn`t take much of a market correction to eliminate 5% in the value of any home. For the average Canadian, their home represents their greatest investment and with that, their largest source of net worth. It also represents a major component of the average Canadians` retirement plan. It should be a source of `equity development` and not be used as an ATM to subsidize current lifestyle.

Bottom Line:

Smart and Prudent move. Will it have the desired effect of slowing down the housing market? Not at all. The truth is that the percentage of Canadians refinancing to that extent is an extremely small percentage of the population so this will have a very small impact.

The minimum down payment on non-owner occupied properties purchased for speculation will now be 20%.

Result:

Significant: this is by far the most significant of the new rule changes. Although the announcement specifically stated that they were targeting the `speculator` not the `investor`, the net effect is that all investors will be impacted. However - and this is VERY important. The impact will not be the fact that investors must now put 20% down. The truth is, I`ve been teaching that for years. Any investor should look to put 20% down for cash flow reasons if nothing else. But the real reason this is a major rule change is the sub-text to this rule change that wasnot included in the original announcement and not reported in the press. In addition to no longer allowing high ratio mortgages, CMHC has also changed their underwriting policy. Whereas they previously allowed for an 80% offset of an investors existing portfolio when underwriting a mortgage, they will now revert to a 50% addback. Now to the average Canadian this is a meaningless change. But to the real estate investor, the change is significant. It will create 3 major changes:
[list type=decimal][*]A 50% add-back is significantly less favourable to an investor than an 80% offset. Without going into an elaborate explanation of the difference between the two, let me make it simple: if you currently own more than three rental properties, you will never be able to qualify for a mortgage using only 50% of the rental income from your portfolio.[*]No problem you say - I`ll just put 20% down. Well the secondary issue here is that all the non-institutional lenders such as Merix, Street Capital and DLC Mortgages, are MBS lenders and require that all the mortgages in their portfolio be insured - even if they are conventional (20% down). That means they need to follow the CMHC guidelines. This means those lenders are no longer an option for real estate investors with 3 or more properties even with 20% down payment.This will shift more of this business to the chartered banks, all of which are tightening their guidelines on rental properties meaning the next issue investors will face is `Cap space`. You will have a cap on how many mortgages you can get with each bank and you now have fewer choices. This will make the need to have a strategic plan even greater.[/list type=decimal]
Bottom Line:

Significant impact on investors. But as for cooling down the overall market - again negligible, simply because real estate investors at the end of the day represent less than 5% of the overall market so their impact on the overall housing market in Canada is muted.

At the end of the day, the finance minister walked a thin line between addressing concerns about an over-heated real estate market in Canada and not over-correcting the problem at the risk of causing damage to the overall economy. I think he went too far with the changes to the investment side, but otherwise I give him full marks. By addressing these concerns now, it should also take pressure off Mark Carney and the Bank of Canada to raise rates prematurely and that is in the best interest of our overall economy. But like I said in January - it`s the government we`re talking about - anything can happen.

Until next time;

Happy investing,

Peter Kinch

Make sure you catch Peter Kinch present all his new findings at the upcoming ACRE Program... click here for all the details

 

[RussellWestcott]

The Hot Real Estate Topics...
Exclusive Interview With Don R. Campbell Discussing
the Questions on Your Mind, and How You Can Take Advantage
of the Conflicting Messages in the Canadian Real Estate Market.


As we start to enter the spring real estate markets, there have been some recent market announcements that have sent shock-waves through the market -- some good, some bad, some indifferent. Through all these changes and speculation of changes there are conflicting messages floating around and conflicting messages leave investors confused about what actions to take.

This is why I decided to interview Don and cut through the myths and misconceptions and get to the truth.

In this interview Don and I jumped head first into some very timely topics... We discussed the following:

• What is really going on in today's market, is there a bubble forming?
  • The recent mortgage changes and how this will directly impact investors and your next mortgage application.
    • Interest rates and the direction they are going and what you should do today to prepare yourself for the changes.
    Finally, discover if it is truly possible to find cash flow in today's market.
  that and more.

Enjoy this timely interview with Don R. Campbell.
Click the media player below:




Click here to download this audio program
To download an audio file...
Windows users, right-click on the link, and select 'Save-As'
Mac users, command-click on the link

To Register for the ACRE program and instantly save $200 ... click here

PS... In the audio interview Don & I talk about an audio presentation on how Don analyzes his properties for cash flow... you can find that interview by clicking here.

 

[DonCampbell]

Hi,

The fall-out continues on the Changes to the Canadian Mortgage Rules and the Market Waves. Here is a link to a recent interview on Alberta PrimeTime TV with 3 Panelist discussing changes and market conditions. Trust you`ll find it helpful:

NEW MORTGAGE RULES – FEBRUARY 22, 2010 Alberta Primetime TV (it takes a few seconds to load on their site):

Alberta Prime Time Interview on Mortgage Changes

If Link above does not work, past this into your browser:

http://www.albertaprimetime.com/Segments.a.../PTG_022210.flv

Looking forward to seeing you at the March REIN Workshops.

 

[DonCampbell]

QUOTE (fumbrunner @ Feb 22 2010, 11:33 AM)
Don, I agree 100% that the TDS changes is the change that will affect people the most and is not being talked about nearly enough.



Can you comment in more detail on how the TDS will now be calculated? How will CMHC treat expenses and income from properties other than the subject one? If they have positive cashflow, will they not be incorporated into the calculation? Or if they are, how? How are expenses treated? How is revenue treated? I would love to see a visual representation of the formula, similar to what they did with the old one.



I read somewhere that gross income will be determined by your notice of assessment and rental income would be included in that. If that is the case, will the PITH calculations include only your principal residence and the subject property? Or will they use all obiligations of PITH from all properties? If it is the latter, then things become problematic, particularly if you show 0 of close to 0 for your rental income. How will CCA come into play?



Any insight would be helpful.




Hi,



Here are some answers to your questions. Provided to me directly from the lender rep. As you can see the lenders are scrambling to see exactly how they will deal with the minute details... but this following is the absolute latest as of today:



Can you comment in more detail on how the TDS will now be calculated? 50% OF RENT WILL BE ADDED TO INCOME WHILE SERVICING PITH (Principal+Interest+Taxes+Heat) AND 1/2 CONDO FEES FROM ALL PROPERTIES AND ALL DEBT ON BUREAU.



How will CMHC treat expenses and income from properties other than the subject one? ACTUAL EXPENSES FROM THE RENTALS WON'T BE A FACTOR AS FAR AS WE KNOW. REMAINS TO BE SEEN AS POLICIES CONTINUE TO CHANGE



If they have positive cashflow, will they not be incorporated into the calculation? IT WON'T REALLY MATTER IF THE PROPERTY HAS POSITIVE OR NEGATIVE CASH FLOW AS WE HAVE TO SERVICE THE FULL PITH + HALF CONDO FEES ANYWAYS.



Or if they are, how? How are expenses treated? THEY'RE A NON FACTOR - (PITH + 1/2CONDO FEES)



How is revenue treated? 50% OF RENT ADDED TO INCOME



I read somewhere that gross income will be determined by your notice of assessment and rental income would be included in that. LENDERS ARE STILL ASKING FOR JOB LETTER AND PAY STUB FOR EMPLOYEES OF COMPANIES SO RENTAL INCOME/DEFICIT ON THE TAX RETURNS WON'T BE A FACTOR IN THAT CASE. IF YOU'RE BFS, THEY ASK FOR NOA'S & T1 GENERALS TO SEE THE SOURCE OF INCOME. I WOULD IMAGINE THE LENDERS WILL DEDUCT THE RENTAL INCOME SHOWING ON THE TAX RETURNS AS WE WOULD'VE ALREADY ACCOUNTED FOR IT IN THE 50% ADDBACK. IF THERE'S A DEFICIT, THAT REDUCES THE BFS INCOME.



If that is the case, will the PITH calculations include only your principal residence and the subject property? IT WILL BE ALL PROPERTIES YOU OWN



Or will they use all obiligations of PITH from all properties? If it is the latter, then things become problematic, particularly if you show 0 of close to 0 for your rental income. MOST T1'S I'VE SEEN SHOW A DEFICIT IN THE RENTAL INCOME SO I DON'T THINK THINGS WILL REALLY CHANGE ON THIS FRONT.



How will CCA come into play? NOT A FACTOR

 

[PeterKinchMortgageTeam]

With the new rule changes, it`s important now more than ever to have a plan in place. If you own 3 or more properties, chances are, you`re not going to qualify with any of the MBS lenders (Mortgage Backed Securites) so that really shrinks the lender sandbox in regards to which lenders we can access for mortgages. You need to strategize and execute properly as you don`t want to cap out with a lender pre-maturely. If you go in without a plan, you might find you`ve hit that brick wall where it could have been avoided.
Having said that, looks like we`re taking a step back to how things in the mortgage world used to be 2 - 3 years ago, only this time around, lenders are asking for a lot more verification of things.

Bonnie Deck
Peter Kinch Mortgage Team
866-988-8326 Ext.27

 

[housingrental]

I`m confused
So lets say I have a property with info like below:

Rent less utilities 70992
divided in half 35496
less Property tax 8,400
less principal and interest 22944
total 4152

Are those the calculations appropriate?
What is the total number compared to (P+I ? ) or ?
And whats a good target ratio?

 

[PeterKinchMortgageTeam]

QUOTE I`m confused
So lets say I have a property with info like below:

Rent less utilities 70992
divided in half 35496
less Property tax 8,400
less principal and interest 22944
total 4152

Are those the calculations appropriate?
What is the total number compared to (P+I ? ) or ?
And whats a good target ratio?

Hi Adam
There is no special formula for the rental calculation. Basically, you can add 50% of the rents to your employment income. The property tax, principal & interest payment on the mortgage, heat component and half of the condo fees need to be included in your TDS, no different than if these were credit card payments. The total payments on your debt (which is everything just mentioned plus anything that shows on your credit bureau) needs to be within 40% of your income (employment income plus 50% of the rental income). If that`s the case, your TDS is okay. But chances are, if you own more than a couple of properties, using the addback system, your TDS will be out of line.
Thanks

Bonnie Deck
Peter Kinch Mortgage Team
866-988-8326 Ext.27

 

[housingrental]

Thank you Bonnie
To confirm if I`m reading correctly than using the above example of $4152 if I had no other properties and no income the calculation would be:

$22944 (P+I) / $4152 (total left from formula above) = 7.09 % = fail to purchase more properties?
And I`d need to have the number from that above property be $57360 or more in order to buy more properties?
Ie
$22 944 (P+I) / $57360 = 40%

OR ?

 

[khart]

I`ve just made an application through my bank for a 5% down CMHC backed mortgage trying to get it under the April 19th deadline for the new CMHC changes where 20% down on rental properties with a CMHC backed mortgage will be required and I was advised that CMHC is requiring 20% down even though the April 19th date has not yet arrived.

I understand in reading various posts from this forum that CMHC is still in some cases doing 5% down. My question is are you aware whether CMHC would keep track of my banker`s application, i.e. if I were to approach another financial institution and resubmit my application which would then hopefully be handled by a more lenient CMHC advisor, would that advisor simply see my recent request and the 20% demand and give the same reply? Is there any chance of changing there minds and would a mortgage broker be of any assistance?

Thanks for any assistance,

K. Hart

 

[barb]

QUOTE (khart @ Mar 12 2010, 06:26 PM)
I've just made an application through my bank for a 5% down CMHC backed mortgage trying to get it under the April 19th deadline for the new CMHC changes where 20% down on rental properties with a CMHC backed mortgage will be required and I was advised that CMHC is requiring 20% down even though the April 19th date has not yet arrived.



I understand in reading various posts from this forum that CMHC is still in some cases doing 5% down. My question is are you aware whether CMHC would keep track of my banker's application, i.e. if I were to approach another financial institution and resubmit my application which would then hopefully be handled by a more lenient CMHC advisor, would that advisor simply see my recent request and the 20% demand and give the same reply? Is there any chance of changing there minds and would a mortgage broker be of any assistance?



Thanks for any assistance,



K. Hart

 

[barb]

QUOTE (khart @ Mar 12 2010, 06:26 PM)
I've just made an application through my bank for a 5% down CMHC backed mortgage trying to get it under the April 19th deadline for the new CMHC changes where 20% down on rental properties with a CMHC backed mortgage will be required and I was advised that CMHC is requiring 20% down even though the April 19th date has not yet arrived.



I understand in reading various posts from this forum that CMHC is still in some cases doing 5% down. My question is are you aware whether CMHC would keep track of my banker's application, i.e. if I were to approach another financial institution and resubmit my application which would then hopefully be handled by a more lenient CMHC advisor, would that advisor simply see my recent request and the 20% demand and give the same reply? Is there any chance of changing there minds and would a mortgage broker be of any assistance?



Thanks for any assistance,



K. Hart




CMHC will be aware of the prior submitted application. I've had an application declined from FirstLine because CMHC wants to see (liquid assets) that a borrower can carry all of their rental properties should they become vacant at the same time. (I kid u not...that is the explanation given to me!). My point is that the lenders are being very picky at his point. You should be able to still find a lender, but move quick.



Barb Moriarty

M09000685

DLC Forest City Funding

London, ON

Tel: 519-640-3603

Fax: 519-640-3602

 

[selewis]

yes, barb. same here. last year (with 28 units) i was told the same thing by the bank on a deal i was trying to put together: we will not approve you because "what if all your rental units are vacant at the same time?"!!

 

[julieCEO]

QUOTE (selewis @ Mar 30 2010, 09:22 PM)
yes, barb. same here. last year (with 28 units) i was told the same thing by the bank on a deal i was trying to put together: we will not approve you because "what if all your rental units are vacant at the same time?"!!




Well banks have gone down. They are now facilitating for rental units. But they should not be vacant.