Crazy low mortgage rates now on CMHC Multi-family - just refinanced at 1.66 % :)

TangoWhiskey

Frequent Forum Member
Registered
Just refinanced an 18 unit bldg this week - the first of 3 buildings in a 52 unit deal I've been working on for the last 18 months. Rate was locked last week at 1.66 %. Broker said it was one of the lowest rates he has ever done in a 20 yr career.

Why this is important - the ultra low rates totally change the proportion of $$ going towards paydown vs interest. Instead of approx equal paydown vs interest at the 2.8 % I underwrote for (3800 and 3800) its now skewed massively towards paydown (4400 vs 2200). This is the highest paydown ratio in history. The foregone interest partly goes to paydown and partly increased cashflow due to lower payments.

At more 'normal' rates a mortgage pays down approx 8-10 % of principal in the first 5 yrs. At high 2's the paydown is up around 12-13 % of the balance. But at current rates paydown is up around 16-17 % of the balance of the mortgage, making a guaranteed doubling of your money on a 85 % CMHC mortgage just in paydown.

The mortgage is now the asset, not the building. Buy bldgs, lever them up and ride out the short-term pain.
 

Mark Baltazar

Excited to learn, invest and meet new people!!!
REIN Member
That’s a significant win!

Just in the process of buying a 12-unit and gearing up for under 2% financing. Makes the DCR so much better.


Sent from my iPhone using myREINspace
 

Developer

New Forum Member
Registered
Nice work. Definitively nice to have such low rates. Some pretty hefty financing fees associated with a 85% CMHC mortgage though. Need to account for legal, broker fee, cmhc application fee, cmhc insurance premium and any cmhc amortization extension fees
 

CorySperle

Senior Forum Member
REIN Member
In theory this sounds ideal, however with such high leverage the numbers can quickly work against you. If you have been on the prairies in the past 5 years you know exactly to what I am referring. Chances are your mortgage there is up for renewal and you have a lower rent roll than you did 5 years ago, your value is less, and your possibly facing paying down the mortgage to get a renewal. This was the reality before the current crash has hit.

I would argue that mortgage debt is never an asset. Even if the interest rate was 0% you will still lose money if you overpay. Rents and values have become incredibly skewed the past decade or so, and all it would take would be a major correction, like a pandemic, to erase much of this potentially false equity.

Yes with CMHC fees the mortgage is actually around 2.7% which is still a great rate, and makes sense for a 5 year hold or longer. Along with refinance comes other costs, legal, reports, potential tax implications, etc. etc.
 

Thomas Beyer

Senior Forum Member
REIN Member
In theory this sounds ideal, however with such high leverage the numbers can quickly work against you. If you have been on the prairies in the past 5 years you know exactly to what I am referring. Chances are your mortgage there is up for renewal and you have a lower rent roll than you did 5 years ago, your value is less, and your possibly facing paying down the mortgage to get a renewal. This was the reality before the current crash has hit.

I would argue that mortgage debt is never an asset. Even if the interest rate was 0% you will still lose money if you overpay. Rents and values have become incredibly skewed the past decade or so, and all it would take would be a major correction, like a pandemic, to erase much of this potentially false equity.

Yes with CMHC fees the mortgage is actually around 2.7% which is still a great rate, and makes sense for a 5 year hold or longer. Along with refinance comes other costs, legal, reports, potential tax implications, etc. etc.

Some markets like maritimes flat and stable.

As such a sub 2% mortgage on a fully rented flat 6% CAP rate asset is THE formula for a rich life and tremendous wealth creation.

Tres bien Monsieur TangoWhiskey !!

Thomas Beyer, Asset Manager, Investor, Community Improver, Author, Father, Mentor www.prestprop.com
 

TangoWhiskey

Frequent Forum Member
Registered
In theory this sounds ideal, however with such high leverage the numbers can quickly work against you. If you have been on the prairies in the past 5 years you know exactly to what I am referring. Chances are your mortgage there is up for renewal and you have a lower rent roll than you did 5 years ago, your value is less, and your possibly facing paying down the mortgage to get a renewal. This was the reality before the current crash has hit.

Couldn't agree more. It was my number 1 take away from going looking for MF in Texas in 2012 - a golden missed opportunity sadly - that your danger point is the renewal against a potentially lowered rent scenario ex oil shock + pandemic (I can't imagine what damage this is doing to Albertan landlords). Its why I follow the REIT's practice and only get CMHC - because there will be a lender at the table in this scenario of lower rents savaging value at refinance - thanks to the insurance. Its called insurance for a reason.

Worst case, and you only get pay down, you still doubled your money. But I appreciate your comment as an experienced operator so thanks :)
 
Top