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Help me to decide best mortgage type option
May 2, 2019
11:04 am
muzokh
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Hi guys

I'm in the process of buying a new rental property and its almost final. My mortgage guy is offering me 3.43% for 5 years variable close. He also offered me 2.99% for 3 years fixed. I really need your help to decide which option is good in the current market. Please note that I don't have a plan to sell the property within 5 years. Thanks and appreciate your advice.

Muzokh

May 2, 2019
12:23 pm
Doug
British Columbia, Canada
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muzokh said
Hi guys

I'm in the process of buying a new rental property and its almost final. My mortgage guy is offering me 3.43% for 5 years variable close. He also offered me 2.99% for 3 years fixed. I really need your help to decide which option is good in the current market. Please note that I don't have a plan to sell the property within 5 years. Thanks and appreciate your advice.

Muzokh  

This is often a personal decision, but I would recommend seeing how your cash flow could handle an increase in interest rates of 1-2% above the current rate. If you're comfortable with that maximum level of increase in rates, then I would go with a 5-year variable closed rate. I've read some evidence that, over the long term, if you can handle the potential interest volatility, you're usually better off going with a variable rates. I do expect the BoC prime rate to decline over the next 12-24 months before rising modestly again.

That said, if you do prefer the comfort of knowing your payments will remain the same, either of those seem like good options. Have you looked into Motus Bank? They're really promoting their new, all-digital mortgage application process, and really promoting growing their lending book of business. They're offering a 5-year variable closed at 2.90% and 1-5 year fixed mortgages all at 3.10%.

I don't think they deal in the broker channel, so your mortgage specialist may not be able to get those rates, but the fact that Motus can offer the same mortgage rate on a 1-year and a 5-year fixed rate mortgage should tell you that they see rates remaining relatively low for the medium- to long-term since banks and credit unions borrow short and lend long. sf-cool

Cheers,
Doug

May 2, 2019
2:56 pm
Loonie
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I think Doug has covered it very well.
If you can qualify for the motusbank deal,it would seem to be a better one.

May 2, 2019
5:38 pm
MG
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Rental properties usually don't qualify for the best rates that one would get for a residential mortgage. I suggest that you go for the lower cost mortgage at 2.99% - might as well try for a positive cashflow if you can. My two cents.

May 2, 2019
5:43 pm
Doug
British Columbia, Canada
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MG said
Rental properties usually don't qualify for the best rates that one would get for a residential mortgage. I suggest that you go for the lower cost mortgage at 2.99% - might as well try for a positive cashflow if you can. My two cents.  

Good point, MG. Thanks, I missed that re: the rental property. I didn't realize it was a rental property. sf-cool

I would probably go with that 3-year 2.99% one then, unless the OP wanted a variable option, which would be good as well.

Curious what the lender is OP's mortgage broker recommending? I would add to check and see what Home Trust, First National Financial, and Street Capital are offering in terms of rental property mortgage rates.

Cheers,
Doug

May 3, 2019
3:16 pm
muzokh
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Hi Thanks for your replies, my mortgage guy is recommending 3 or 5 years fix with 2.99 +.15 . Please note that .15 is for additional for rental property. My lender name is CIBC. Thanks

May 3, 2019
3:32 pm
Doug
British Columbia, Canada
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muzokh said
Hi Thanks for your replies, my mortgage guy is recommending 3 or 5 years fix with 2.99 +.15 . Please note that .15 is for additional for rental property. My lender name is CIBC. Thanks  

Ah, okay, that seems reasonable. Sounds like you're dealing with a CIBC mobile mortgage specialist, then? sf-cool

That seems like a decent deal for a rental property; only a modest 15 bps premium to the 2.99%. You might also look into First National's and Street Capital's mortgage rates for rental properties, but suspect they are likely the same.

Cheers,
Doug

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