“Had a client call today about possibly buying a rental property with 0% down and a 3% variable rate mortgage. Trouble is, client already has a bunch of debt (hundreds of thousands), “owns” a house in a location that has seen prices dropping for awhile now and has zero cash. If client gets a mortgage for the rental property it wouldn’t surprise me in the least, sadly. This is what it’s come to. Hello, subprime Canada!”
- pricedoutfornow at vancouvercondo.info September 30th, 2011 9:57 pm
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Ouch. So effectively this person’s got no skin in the game. So it’s a one-way bet. Prices rise, client wins! Prices fall, somebody else loses! A great bet for the client!
Unfortunately for me, as a saver, I have too many assets, so it’d be a two-way bet, so the risk is too high for me to take it.
Even though readers here represent many viewpoints, it’s probably fair to say that we’re all agreed that these kinds of deals should NOT be CMHC backed. Let the lenders and the ‘clients’ discuss the risk of the bet, and the downside consequences.
This has been going on for years. It’s called “savvy investing”.
Guess what happens to mortgage rates with the removal of government underwriting. (Hint: rhymes with “dayglo sup”).
Write your MP if you don’t like what you’re reading.
I think I am going to get into the sign making business!
So I have a question.
Can someone who has a property/condo with a mortgage use their equity to borrow money as a downpayment for another property?
When the banks determine what you can borrow they look at your income and debt, so if you can borrow from your other homes equity is the debt ignored in the assessment,
I ask because my friends recently bought a 500 sq ft 1 br condo in dt.
When I asked whether or not they plan to start a family soon, they said they just plan to rent out as an investment and buy a house.
I am pretty sure they are putting alot of their money into the dp of the condo, so I don’t understand where they think they will come up with the money for the dp of the house.
You have it about right. The bank will look at debt service ratios for primary and look at combo of rental income and primary income for investment properties. The lender cares about being repaid and will take various payment methods and guarantees to allow this.
Should really get a mortgage specialist to explain it in more detail.
“House Is Gone but Debt Lives On” http://online.wsj.com/article/SB10001424053111904060604576572532029526792.html?mod=WSJ_hp_LEFTTopStories
Looks like in the USA the banks can get you for the difference between the mortgage and the sale price.
BTW, my advice of course, was NOT to buy the property. But do people every listen to me? Nah, of course not. And why should they? I’ve been wrong for the past 5 years. But you’re only wrong until you’re right. I still have hope I may one day no longer look like an idiot.
En attendant Godot?
Violet Fane had this to say…
‘Ah, all things come to those who wait,’
(I say these words to make me glad),
But something answers soft and sad,
‘They come, but often come too late.’
On the other hand (which is probably THE stock idiom in orthodox economics)… As any parachutist could tell ya, pull the ripcord on your primary a little too early and you may miss the landing zone… but at least you won’t smack into it at terminal velocity.
Before I get any further, can this guy actually get a mortgage?