- Joined
- Aug 26, 2010
- Messages
- 380
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 $$ going towards paydown vs interest. Instead of approx equal paydown vs interest at the 2.8 % I underwrote for (3800 and 3800) its now skewed massively towards paydown (4400 vs 2200). This is the highest paydown ratio in history. The foregone interest partly goes to paydown and partly increased cashflow due to lower payments.
At more 'normal' rates a mortgage pays down approx 8-10 % of principal in the first 5 yrs. At high 2's the paydown is up around 12-13 % of the balance. But at current rates paydown is up around 16-17 % of the balance of the mortgage, making a guaranteed doubling of your money on a 85 % CMHC mortgage just in paydown.
The mortgage is now the asset, not the building. Buy bldgs, lever them up and ride out the short-term pain.
Why this is important - the ultra low rates totally change the proportion of $$ 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.