Canadian Real Estate

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house hacking question

Posted Jan 16 2022, 18:04

the idea behind 'house hacking' is you move into the house/mfh in order to get a better interest rate, but when you move to the next place won't the bank change your mortgage to an investment property after 5 years when you need to reapply? or does this assume you take a fixed mortgage for 25 years - although I've seen experienced people say that variable interest usually saves you more than fixed.

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David Steinbok
  • Rental Property Investor
  • Toronto
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David Steinbok
  • Rental Property Investor
  • Toronto
Replied Jan 16 2022, 18:57

House hacking is generally,  you buying a house and moving in a d getting roommates to help pay your mortgage.  Or buying a multiplex and renting out the other units so you can live cheaper. It's basically the same thing, but in the second scenario, you arent sharing a toilet.  

as to the other part of your question. When your mortgage term is up, you can just chose to renew your mortgage. I'm not 100% sure, but I think you can keep your current interest rate, though you may want to negotiate a better rate if possible. And in my experience a variable rate will save you money over the 5 year term. But depending on how much you owe, a fixed rate gives you a constant predictable monthly expense.  And mortgage interest is a write off anyways. 

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Tyler Stiller
  • Rental Property Investor
  • London, Ontario
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Tyler Stiller
  • Rental Property Investor
  • London, Ontario
Replied Jan 17 2022, 03:17

Unless you refinance your mortgage, the lender will just send you a renewal with similar terms 

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Michael Dumler
  • Real Estate Agent
  • Atlanta, GA
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Michael Dumler
  • Real Estate Agent
  • Atlanta, GA
Replied Jan 17 2022, 03:46

@Ockert Kruger the five year reapplication is only pertinent to interst-only loans, not fixed rate mortgages. The real advantage of house hacking is not necessarily to acquire a low interest rate, but rather more to utilize a low down payment. For example, FHA insured loans require the borrower to bring 3.5% to the closing table as a downpayment, while many conventional occupation loans only requre 5% down. Furthermore, with interest rates at all time lows, I highly advocate that you take advantage and lock in your rate. If you acquire an asset that helps cover the mortage plus some, there is no significanlt reason to use an interest-only loan. Hope this helps!

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Michael Noto
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Michael Noto
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Replied Jan 17 2022, 04:29

If you want to free up your FHA loan again you would just need to refinance the current FHA loan to a conventional one.

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Joshua Janus
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Joshua Janus
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Replied Jan 17 2022, 07:56

To free up the FHA loan so you can keep using it over and over, you'll need to make sure you can build up the equity possible whether through value add or time to refinance.

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Michael W Sullivant
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Michael W Sullivant
  • Investor
  • Canada
Replied Jan 17 2022, 14:25

Hi Ockert,

When you renew your mortgage, your rate is going to be dictated by the interest rate at that time. Usually, when the term is up, you can either renew or it will float at the variable rate. Depending on what interest rates do in the future, that could really change your cash flow, or eliminate it altogether. Knowing your cost to finance over the next 5+ years is more conservative, and an important part of running your REI as a business, imo.

The real question seems to be, "Do you think interest rate are going to go up, or down?"  If they stay low, variable is the way to go. If they go up, the locked in rate is the way to go. Interest rates have been on a downward trend for years, but everyone one is talking about them going up this year.  The past experience may not indicate future results.

Personally, I only see rates rising and that makes a variable rate less attractive to me. Last year I bought a duplex with a 1.75% 5 year term, 25 year amortization. I should have locked in a slightly higher rate for longer as I see rates are already climbing with that 5 year term now being 2.59%. Prime is 2.45% and variable is 1.30%. 

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Dwayne Poster
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Dwayne Poster
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Replied Jan 22 2022, 14:55
Originally posted by @Ockert Kruger:

the idea behind 'house hacking' is you move into the house/mfh in order to get a better interest rate, but when you move to the next place won't the bank change your mortgage to an investment property after 5 years when you need to reapply? or does this assume you take a fixed mortgage for 25 years - although I've seen experienced people say that variable interest usually saves you more than fixed.

A variable rate has been good in recent history, only because the rates have continuously fallen. That may be changing going forward.