When you don’t have the cash for a down payment for a real estate purchase, you can put up another property as collateral. It can be our own home or that of relatives who act as guarantors. This collateral mortgage guarantee will be notarized. It allows you to finance a non-cash purchase.
The main advantage of a collateral mortgage guarantee is that it avoids refinancing with notary fees on the property, which serves as leverage. This advantage, which can be estimated at around $1,000, is not worth the candle, believes Serge Morvan, chartered real estate, mortgage broker.
Mortgage line of credit
When he learned that his mother was going to have to find a new place to live, François Laferrière had an idea: buy a condo and rent it to her
Owner of a condo in L’Épiphanie since 2012, François Laferrière decided to extract from his mortgage line of credit the necessary funds for the down payment on a condo in Saint-Roch-de-Michigan, which he immediately rented to his mother and spouse.
I’m helping my mom out and she’s helping me out by being my occupant. I consider it to be sheltered speculation.
At 4.55%, the interest rate on François Laferrière’s mortgage line of credit is higher than that of a fixed or variable rate mortgage. This police officer and new real estate investor intend to repay his line of credit quickly. Since the condo was purchased well below its market value, he intends to refinance it soon to purchase a triplex.
A mortgage line of credit can be used for renovations or the expansion of a rental property. It can also be used to buy or build a cottage, or for a self-build project that requires multi-stage expenses,” says Michelle Lizotte
With a credit extension, you pay interest, however you don’t need to reimburse the head, says Lizotte. Once a project is completed, we can refinance it, or we can transfer the balance of the line of credit into a new portion of our residential mortgage, either fixed or variable rate.”
The mortgage line of credit is available with so-called “umbrella” mortgages. It is also called “revolving credit”. Money becomes available as soon as the capital paid at the time of purchase or reimbursed to the lender reaches 20% of the price paid for the property.
Whether with a line of credit or refinancing, it is very important to make only one use (personal or investment) for each loan or loan installment. On the tax return, interest will be treated differently if it is generated by a personal loan, an investment loan, or a loan for the maintenance of a building. A mortgage specialist can offer some advice, but it is best to consult an accountant or tax specialist. It is better to be well informed before embarking on these types of projects. And you have to do your calculations carefully to avoid finding yourself in an unfortunate situation, to say the least