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Rental property mortgage financing in Canada

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Financing a rental property

Bruce Schoenne, AACI, P.App
Jan 18, 2010 - 8:31:00 PM

Information on mortgage financing for rental properties


So you've got this idea to buy your first rental property. OOHH you big investor you!!

Problem is you have absolutely no idea about what it takes to finance your idea.

I'll try to shed some light on the subject, but keep in mind that the following information should be used as a guide only. Each mortgage application should be examined on an individual basis.

To start, it's important to understand the difference between a rental property and a second home.  A rental property is a property who's sole purpose is to generate income while a second home is just that, a second home to be used by you for recreational purposes etc. 

If your looking for information on financing a second home, I've provided a link at the bottom of the page under "suggested resources". Another article you might also be interested in is called "borrow more money or" which talks about financial leverage.

OK, for rental properties, financial institutions will generally lend no more than 65% of the purchase price or appraised value (which ever is lower). In exceptional cases, some financial institution will lend up to 75% loan to value but that will depend on the location of the property and your financial strength.

If your looking for a mortgage of greater than 65%, then the financial institutions will require that the mortgage is insured through either CMHC or Genworth. Through CMHC or Genworth, financing of up to 85% is available but be warned, it will be subject to a mortgage insurance premium of up to 4.5% of the mortgage amount.  Also, the rental property can only be residential in nature.  They will not finaince commercial properties under this program.

Now as far as qualifications go, it is a requirement that the revenue from the property takes care of the majority of the operating expenses of the property which includes the mortgage payments. If the property is unable to service the expenses, then you personally must have the financial ability to cover the short fall.

As a final note, It's important to know that the income being generated by the property must come from a legal and permissible use of the property. ie, if you purchase a home with an unauthorized basement suite, then the income being generated by that suite will not be included as part of the properties ability to cover the operating expenses.

Looking at financing a rental property? Simply complete one of our online mortgage applications and one of our knowledgeable Mortgage Specialists will arrange the mortgage that best suits your requirements.

Questions? Talk to one of our Mortgage Specialists today.

Suggested Resources

Canadian Mortgage Calculator - Calculate mortgage payments, amortization schedules, interest costs and more. The more you play with it, the more you�ll see what it can do.

GDS and TDS � Understanding your GDS and TDS is an important part of your borrowing ability.

Credit Repair � Problem credit? Here some great tips on improving your credit.

Financing a second home - Information on the qualifications and requirements to finance a second home.

Borrow more money or - Interesting article on financial leverage and how it works with you and can work against you.

KalMor Morgages and Investments - Mortgage solutions for Canadians.


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