Choosing the right mortgage products will lay the ground work for all future property acquisitions. A consumer mindset is to get the most for our money, the best deal, or the lowest rate.  An investor mindset focuses on strategy, leverage, time horizon, and exit plan to be in the best position to capitalize on new opportunities.

In my A “How To” Guide For Second Suites in Ontario blog, I mentioned the importance of having a mortgage broker who specializes in working with real estate investors (I recommend all of my Joint Venture partners to use my personal mortgage broker).

With access to dozens, if not hundreds, of different lenders –including A Lenders, B Lenders, Credit Unions, and Private Money— they’ll tailor a game plan to your short term and/or long term portfolio goals. Think about this for a moment; is it flexibility or certainty that is most important to you? The investor’s answer is… “It depends on my investment strategy.”  

If, like me, you’re interested in purchasing and renovating properties, then you must ask yourself the following questions:

• How much am I pre-qualified to borrow?

• Do I have the down payment, closing costs, and renovation costs covered?

• How long will my renovation take and can I cover the carrying costs if it takes longer than I anticipated?

• What is the expected After-Repair-Value?

• What is my exit plan? Buy and hold? Refinance? Flip?

The answers to these questions will start to form you and your mortgage broker’s game plan. Now take it one step further and ask yourself the following set of questions next.

• If I refinance in order to recoup some, or all, of my initial investment after making improvements do I need to pay for appraisal, legal and interest charges?

• If I only have enough capital to fund a portion of my renovation costs, how can I finance the rest of the renovation?

• If I sell after making improvements that increase the property’s value, is it better to have a variable rate and shorter term with minimal penalty?

The answers to these questions will further shape your team’s game plan.

Now, here are three examples of mortgage products which are atypical from a conventional mortgage. They all come with their own merits and may be better suited for your specific investment strategy. Be sure to speak to your mortgage broker for more information about these products.

Re-advanceable Mortgage
A mortgage that allows the borrower to add a line of credit to the loan, allowing you to re-borrow any part of the principal amount paid down. Think of it as a conventional mortgage bundled with a home equity line of credit.

For those not familiar, a home equity line of credit, or HELOC, is like a mortgage in that it is secured to the value of your property.

The difference is you have access to credit on an as needed basis, rather than receiving a lump sum loan. You can borrow, pay it back, and borrow it again. It differs from a conventional mortgage and HELOC product in that you are gaining more borrowing power with every mortgage payment made. Whereas with a HELOC you need to reappraise each time you want to access equity from the property, and are paying the associated fees each time. 

Purchase Plus Improvements
A mortgage product that covers the purchase price, and some or all of your renovation costs. With it you can borrow up to a certain percentage or capped dollar amount for a planned renovation. Note, the purchase price plus the renovation costs cannot exceed your pre-approved limit.

There are also a few unique hoops you have to jump through with this product. For one, after qualifying for the purchase price, and prior to finalizing your mortgage, you must provide firm quotations for the renovation costs. And two, you will also not receive any funds for the renovations until after the completed work is reviewed by the lender’s representative. Only then will the lender release funds.

Two-Step Mortgage
This mortgage product offers two different interest rates, hence the name two-step. There is a fixed introductory rate for the first several years, which may allow you to qualify for a mortgage when you otherwise couldn’t through a conventional mortgage.

At a predetermined date the introductory rate will then change to an adjustable rate. The adjustable rate will remain in effect for the balance of the mortgage. It is an appealing option when renovating a property, if your strategy includes refinancing with a different product, or selling, during the introductory rate period.

You may have known about some or all of these products already. You may have not known about any of them. Consumers often only hear about the big banks conventional mortgages, what the Bank of Canada’s overnight lending rate is doing, and that there is a real estate bubble about to burst for real this time.

Remember though, we are investors. Knowing that there are a plethora of mortgage options available to help meet your investment goals is truly a game changer. At least it was for me.

Okay, it’s time to summarize the key points I want you to take away from this blog.

1. Identify your investment strategy.

2. Consider your time horizon.

3. Always run your numbers

4. Know your exit strategy.

5. Communicate with your mortgage broker.

6. Evaluate the best mortgage products.

7. Be ready to scale your investment portfolio.

Best of luck!