When making the decision to purchase an investment property, the cost of the unit is only one part of the price that you have to consider. The actual cost of the borrowing is another big piece of the cost-effectiveness pie. Before committing to buy a property, whether as an investment or for personal use, you have to spend some time figuring out the cost of borrowing the money to buy it. While there are options in how you choose to finance your property, the good news is that interest rates are still very low in Canada.
Financing options in Canada
When it comes times to buy a property, regardless of whether the property is intended as an investment rental property or one for your own personal use, you have to decide how you will finance this purchase. The most common option is to obtain a mortgage for the purchase price but if you have the means, a line of credit is also a good option.
When deciding which route to take for your purchase you have to consider the interest rates that come with each option. The interest rates can significantly affect the end price of your investment, so doing some math before you sign on the dotted line can end up saving you capital in the long run.
Mortgage
If your bank offers a good interest rate and you don’t have access to a line of credit this can be a good option for purchasing a rental property, especially if it is your first one. Taking on a mortgage can help you take the first steps in building equity in order to grow your investing game. Given as a one-time lump sum, a mortgage loan amount is repaid over a fixed term.
Investment line of credit
Only available to you if you will not be living in the property, and investment line of credit is a good option for home financing, as you can limit how much of it you actually use and when. Operating almost like a credit card, you only pay interest on the amount of the loan that you use so you can choose to use more or less of it, depending on how much of the home you need to pay for. This is also going to be helpful for any potential home renovations you might need to do since the money is not locked into your mortgage and can be withdrawn and repaid repeatedly.
Combination of the two
Combining the two methods might be the right choice for you. You’ll need to talk to your bank to compare interest rates to decide the terms of the combination, though. If you intend to do multiple repairs and are going to need to access the loan funds at different times, an investment line of credit may be more helpful than a mortgage.
Interest rates at near all-time lows
The good news is that in Canada, interest rates are still very low, almost the lowest they’ve ever been! This is good news for anyone looking to finance a new home investment because the ultimate cost of the investment stays low. When buying any property, it’s essential to consider the cost of the loan you are getting, which is true whether you are using a mortgage or line of credit.
Low interest rates mean that you won’t get locked into an inflated mortgage and end up paying way more for your investment than you initially planned for. That being said, it is important that you consider the interest rates before you agree to buy so that you know exactly what you are signing up for!
Interest costs can be an expense
In Canada, the interest rates of your investment loan can actually be used as a deduction on your taxes to help offset your rental income. This helps you to get the maximum return on your investment.
Condo Investing is a great move
Buying an investment property is a big decision, and a wise one if made correctly! There are many things to consider before jumping into the world of real estate investment, but the process isn’t a complicated one. Get connected with a local condo sales specialist that can help you find the right property for your goals, and get you started down the road of real estate investment the right way!
