Rental Property Investor · Kelowna, British Columbia · Member since 2015 · 136 posts · 54 votes
Dear folks
We have 3 Properties that we acquired using our HELOC As the down payment few years ago.
One of the mortgages is coming up for renewal and considering the property value went up about 70% in 3years I am planning to refinance it and pull some money out. (Instead enjoying the LTV status)
So the question becomes ..... should I use the money to invest in another property or pay the HELOC?
I am currently inclined to buy another one as the HELOC interest is 100% tax deductible hence I may keep it as a "never ending" nor growing debt.
Banks in Canada have always been careful as far as lending (which has sheltered us from the 2008 real estate crash) and there’s no signs of seeing that change in the near future. What is relatively new is the “mortgage stress test” where banks shall add an additional 2% on the top of the landing rate to make sure people can truly afford it. (Government qualifications requirement)
The so-called "stress test" determines the borrowers ability to qualify as follows.
If the mortgage loan is to be insured, the borrower must qualify at the higher interest rate of either:
the Bank of Canada’s conventional five-year mortgage rate (presently 5.34%)
the interest rate you negotiate with your lender
If the mortgage loan is uninsured, the borrower must qualify at the higher interest rate of either:
the Bank of Canada’s conventional five-year mortgage rate
the interest rate you negotiate with your lender plus 2%
Regardless, interest rates are still considerably below their historic range of 7-9%.
We have 3 Properties that we acquired using our HELOC As the down payment few years ago.
One of the mortgages is coming up for renewal and considering the property value went up about 70% in 3years I am planning to refinance it and pull some money out. (Instead enjoying the LTV status)
So the question becomes ..... should I use the money to invest in another property or pay the HELOC?
I am currently inclined to buy another one as the HELOC interest is 100% tax deductible hence I may keep it as a "never ending" nor growing debt.
Thoughts ?
Thanks in advance
Edison
My understanding is that prices are cooling in Kelowna. Is that accurate?
I would use the HELOC to *wisely* buy another property. Keep in mind that when the economy cools, banks close HELOCs and don't allow further borrowing. I heard that Canadian banks are under scrutiny and under pressure right now. I'd check to see if that is correct before making a decision though. And say "Hi" to Curtis the Urban Gardner down the street from you.
Rental Property Investor · Kelowna, British Columbia · Member since 2015 · 136 posts · 54 votes
7y
Hey @Account Closed
The Kelowna market cooled down a little bit . Current sales went down but prices are still climbing.
We recently invested in Victoria as it has the correct economic fundamentals in place (GDP, Unemployment rate, transportation and population growth)
Banks in Canada have always been careful as far as lending (which has sheltered us from the 2008 real estate crash) and there’s no signs of seeing that change in the near future. What is relatively new is the “mortgage stress test” where banks shall add an additional 2% on the top of the landing rate to make sure people can truly afford it. (Government qualifications requirement)
Unfortunately it took away 20% of Canadians buying power and hopes of ownership which is kind of bitter / sweet situation.
It selfishly it turns out to be a better investment environment. (Less competition seeking for Properties) while supply keeps decreasing, demand keeps so ... rents keep moving upwards.
Banks in Canada have always been careful as far as lending (which has sheltered us from the 2008 real estate crash) and there’s no signs of seeing that change in the near future. What is relatively new is the “mortgage stress test” where banks shall add an additional 2% on the top of the landing rate to make sure people can truly afford it. (Government qualifications requirement)
The so-called "stress test" determines the borrowers ability to qualify as follows.
If the mortgage loan is to be insured, the borrower must qualify at the higher interest rate of either:
the Bank of Canada’s conventional five-year mortgage rate (presently 5.34%)
the interest rate you negotiate with your lender
If the mortgage loan is uninsured, the borrower must qualify at the higher interest rate of either:
the Bank of Canada’s conventional five-year mortgage rate
the interest rate you negotiate with your lender plus 2%
Regardless, interest rates are still considerably below their historic range of 7-9%.
We have 3 Properties that we acquired using our HELOC As the down payment few years ago.
One of the mortgages is coming up for renewal and considering the property value went up about 70% in 3years I am planning to refinance it and pull some money out. (Instead enjoying the LTV status)
So the question becomes ..... should I use the money to invest in another property or pay the HELOC?
I am currently inclined to buy another one as the HELOC interest is 100% tax deductible hence I may keep it as a "never ending" nor growing debt.
Thoughts ?
Thanks in advance
Edison:
You can do both. When you place the new mortgage on your property, use the proceeds to retire the balance on your LoC. Later, when you find a deal worth pursuing, you can re-advance the funds from your secured LoC.