Options for getting some equity from a rental property.

[golferstu]

I live in Alberta and have a rental property in Kimberley B.C. It has a value of about $130,000.00 and I owe about $70.000.00. I have a mortgage up for renewal in June 2012 but would like to get some equity now. Any suggestions, I am leaning towards a heloc . Thanks Golferstu.

 

[DenisEncontre]

Here are just a few things to keep in mind.



1. Is there a penalty for paying off the existing mortgage early?

2. Have you considered the cost of borrowing...Mortgage registration, Lawyer fees etc?

3. A line of credit usually shows up on your credit report as revolving credit and may negatively impact your credit score.

 

[greg12]

Hi Golferstu:



Send me an email at [email protected], and I will share several tips with you on how my clients have done it.



Gregory Ero B.Comm



Professional Mortgage Consultant


A 2 Z Mortgages Inc.


115B 13740 72A Ave Surrey, BC
V3W 1N5

Cell: (778)891-GREG (4734)


Fax: (604)594-3735

 

[2ndstory]

You have about $60k equity then. You should be able to get around $48k secured on that property. I did that on one of mine. It was pretty easy. You will need to get an appraisal done though. Best to find a mortgage broker and talk to them. Don't bother with a bank imo.



Nik

 

[johnsu]

I'd say talk to lender cause LOC will go up to 80% only. so 80% of 130k is 96k approx and with mort of 70k means you only have 26k to access.

 

[golferstu]

Thanks Denis for your advice and input. It is appreciated. Cheers Stu.

 

[golferstu]

Thanks Nik. Can you recommend a broker. Cheers Stu.

 

[golferstu]

Good point Johnsu. Thanks for your advice. Cheers Stu.

 

[RobMacdonald]

Hi Stu,



You should be able to get up to 75% to 80% of the appraised value. I don't know of a lender that will give you 80% of the equity.Depending on the applicant, you will have the option of going through a bank or credit union and arranging a 2nd mortgage LOC.



If you don't qualify for bank financing, then you may have the option of private money, but would be looking at probably over 10% interest. With the right strategy, you could look at the 2nd mortgage on a 1 year term, and then refinance the property to pay out the second at maturity.



I'd be happy to discuss this further with you.

 

[2ndstory]

Where are you located Stu? I suggest working with one who is local to you.



Nik

 

[bizaro86]

One option that might work for you would be to "blend and extend" your mortgage with your existing bank. Basically, you pay your old rate on the old money, and get some new money at today's rates, and then they average the rates using a weighted average. You may have to extend the term to do this.



Benefits are you wouldn't have to pay a penalty, since you wouldn't be breaking your existing mortgage, but you may not get the best available rates on the new money. Best bet would be to get an actual quote before deciding, to see whether this works out better than getting a 2nd.



Michael

 

[Mike Milovick]

Hi Michael;



I would double check on the concept of "blend and extend" and not having to pay a penalty. My gut says that you WOULD be paying a mortgage break penalty in this scenario that would be tacked on to your amount borrowed. I don't see how a "blend and extend" would be any different than re-financing the property with a new first mortgage. Everytime I have done it, it has involved costs/penalties.



I would love to have a mortgage broker comment.

 

[bizaro86]

[quote user=MikeMilovick]Hi Michael;



I would double check on the concept of "blend and extend" and not having to pay a penalty. My gut says that you WOULD be paying a mortgage break penalty in this scenario that would be tacked on to your amount borrowed. I don't see how a "blend and extend" would be any different than re-financing the property with a new first mortgage. Everytime I have done it, it has involved costs/penalties.



I would love to have a mortgage broker comment.






Hi Mike,



I did a blend and extend on my personal residence, and there were legal costs to register the higher mortgage. I didn't have to pay a penalty to break the mortgage, because they averaged the interest rates (so I didn't get the best current rate, but I didn't have to pay the penalty). The lender covered the appraisal fee.



Regards,



Michael

 

[RobMacdonald]

Not every lender offers a 'blend and extend'. It's mostly the banks, but can be a feature of the other lenders. The penalty is waived when you get a blended rate, because the blend calculation pays the bank out for the remainder of the term.



Example: If you have 2 years left at 6.00% and you can get a new 5 year term at 4.00 %, the blended rate would be 2 years at 6.00%, and 3 years at 4.00%, and would probably work out to a new 5 year term at about 4.80%.



So you're still paying out the 2 years at 6.00%, but you get to lock in the saving of the 4.00% for the other 3 years. If you're taking additionally money then you calculation gets skewed in the positive direction as the new money is at the lower rate.

 

[bizaro86]

[quote user=RobMacdonald]Not every lender offers a 'blend and extend'. It's mostly the banks, but can be a feature of the other lenders. The penalty is waived when you get a blended rate, because the blend calculation pays the bank out for the remainder of the term.



Example: If you have 2 years left at 6.00% and you can get a new 5 year term at 4.00 %, the blended rate would be 2 years at 6.00%, and 3 years at 4.00%, and would probably work out to a new 5 year term at about 4.80%.



So you're still paying out the 2 years at 6.00%, but you get to lock in the saving of the 4.00% for the other 3 years. If you're taking additionally money then you calculation gets skewed in the positive direction as the new money is at the lower rate.


Thanks for the additional explanation Rob, you said it much better than I did! My mortgage was/is with Scotiabank, and the process of doing this was pretty easy. I obviously don't know where the original poster's mortgage is held at, but thought it was worth presenting as a potential option (for the OP or others reading), since it could save a potentially hefty break fee.



Regards,



Michael

 

[RobMacdonald]

[quote user=bizaro86]Thanks for the additional explanation Rob, you said it much better than I did!


No worries, it's the 15 years in mortgage lending and having to explain the process about 1000 times!! LOL