Interest only payments

[BradHillier]

Scanning over CMHC`s site i noticed an option for interest only payments on rental properties.

Would this be a very good option for a potential negative cashflow property if you were to pay down the mortgage and/or most any situation considering most investors are looking to build equity?

Side note: Anyone have any free links/resources for new investors? I`m still waiting for my membership but i would like something to read.

 

[MonteDobson]

Hi Brad,

Interest-only mortgages work effectively to increase monthly cashflow, but you don`t pay down ANY principal balance on the mortgage at all, you are just paying interest.

One thing you can do though is apply any excess cashflow back into the mortgage to pay down some of the principal balance and therefore build some equity.

 

[RobMacdonald]

Hi Brad,

The interest only portion through CMHC should be taken with caution. It may help with a property that has short term negative cashflow, but eventually the LTV must get to 80%, the loan would have to be locked in for a fixed payment with a shortened amortization period. So what you save today, coud be paid back in the future.

You may be better off looking at a 35 or 40 year amortization. There would be a slight difference, but in the future you could increase the payments after rents were increased.