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The Advantages of 5-Year Fixed Mortgage Rates

This fall, interest rates on mortgages reached an all-time low. Since 2008, where rates peaked at 5.89%, they dropped this November to an average of 2.09%. But in the wake of the federal Liberals’ tightening of mortgage rules, the rates are already on the rise. Currently, 5-year fixed rates stand at about 2.43%—still reasonably low compared to the past eight years. So if you’re considering investing in income property in Montreal, right now is the ideal time. You may be torn between a five-year fixed and a shorter term or variable rate. Here’s why a 5-year fixed rate is highly recommended: Grab it before it soars. Experts predict variable mortgage rates will keep steadily rising in the next few years. In fact, it is possible mortgage rates will reach 3% or 4%; therefore, buyers are strongly urged to lock in fixed-rates while they’re down. Pay with less risk. Variable mortgage rates can—and likely will—vary during the mortgage term. This means that you won’t have the security of knowing exactly how much your monthly payments will be. Budget better. Locking in a five-year rate leaves a lot more breathing room in terms of budgeting. Since you won’t have to live with the fear of interest rates fluctuating from year-to-year, you can budget yourself according to your fixed rate, and calculate maximizing your savings in order to pay your mortgage off faster. Some lenders usually allow prepayment privileges as high as 10% annually—a great way to shed years off your amortization period. If you choose to go with a variable rate, there’s no telling what the subsequent year will bring—you may need to use your savings to go towards the increased monthly interest instead. It is always recommended to consult a professional mortgage broker to go over all your options. At Baron Realty, we will ensure that you are making the financial decision that is right for you and will help you achieve your real-estate goals. For more information about our brokerage services from income property owners across Montreal, contact us today.    

Real Estate 101: Preparing Your Apartment Building for the Market

If you’re thinking about selling your apartment building, it may be tempting to put your property on the market right away. Without preparation, however, your sale may end up being much more complicated than you anticipated and take longer than planned. Careful planning helps you to get the best price possible for your property and ensures the transition to the new owner goes as smoothly as possible. If you’re getting ready to put your apartment building up for sale in Montreal, here are a few things you should consider from the real estate professionals at Baron Realty.

1 – Get your papers in order

Any real estate transaction requires a large amount of paper work—especially larger scale properties like apartment buildings. Doing some of this administrative work before listing your apartment building will help the buying process go much faster. For example, have the leases, lease renewal letters, certificate of location, renovation expenses, upgrades, municipal and school tax bills, insurance bill and utility bills all ready. Doing these kinds of administrative tasks will make it easier for potential buyers to do their due diligence quickly and efficiently since both the banks and the buyers will need all these documents.

2 – Consider apartment upgrades where possible to improve the revenues and net income

Simple apartment renovations such as energy efficient lighting and low-flow plumbing systems can improve your operating costs and make your property more appealing to potential investors.  Even if you plan on selling sooner rather than later, starting renovations can demonstrate to investors the potential value on your property, which creates an increased appeal and more importantly improves the net income and hence the property value.

3 – Get the environmental inspection done

These days, in almost all sales involving buildings that are 7 units or more, it’s important to get the environmental inspections done right away since the banks will ask for them before lending. If there is any kind of contamination, it needs to be cleaned and decontaminated before the banks lend on the property. It’s best to get these reports up front before going for sale on the market.

Get a Qualified Income Property Real Estate Broker

The real estate market can be difficult to navigate. A professional broker can help you best prepare to enter the real estate market and ensure that your property sells for the highest potential value. At Baron Realty, we have years of experience within the Montreal apartment building market. We have the knowledge and skills necessary to help you complete a successful property sale. For more information about our brokerage services from property owners across Montreal, contact Baron Realty today.

Foreign Investors in the Montreal Real Estate Market: What You Need To Know

There has been a lot of talk about the presence of foreign investors in the Canadian housing market in recent years, but how do foreign investors actually impact the real estate market in Montreal? Earlier in the month, the Canadian Mortgage and Housing Corporation (CMHC) released a new report on the impact of foreign investors on the real estate market of the Montreal metropolitan area.

Here is some of the most important information uncovered by this report that anyone involved in the Montreal real estate market should know.

Report Findings

The CMHC report found that relative to the rest of the country, the presence of foreign investors in the Montreal real estate market is low. These findings, which have been supported by many industry leaders, was compiled using property assessment and land registry data, as well as previous CMHC reports on foreign investments.

Breakdown Of Foreign Investments

According to the CMHC, the majority of foreign investors are buying condominiums. Condos, especially those located in downtown Montreal, account for 73% of real estate purchases made by people whose primary residence is outside of Canada. However, only 1% of condos in the Montreal metropolitan area are owned by international buyers. Foreign investors may pay up to 10% more on average for a condo in the Montreal area. Foreign investors may be slightly affecting the prices of condos and luxury homes, but the prices of apartment buildings and multi-family properties in Montreal has remained largely unaffected by foreign investors.

What Does This Mean for Local Residents?

The relative lack of foreign investors means that their presence in the real estate market doesn’t present a risk to local investors. This is good news for local residents interested in buying or selling property—it’s still possible to find affordable multi-family buildings in Montreal without stiff competition from international buyers. Because foreign investors are more concerned with the luxury home and condo market, there has never been a better time for local residents to invest in multi-family properties and apartment buildings, which remain relatively untouched by foreign competitors. This isn’t the case in other Canadian cities such as Toronto and Vancouver, where the rate of foreign investors has been steadily rising in all property markets over the past few years.

Now is a good time to enter the Montreal real estate market, especially in the multi-family property and apartment building sector. Contact us at Baron Realty for help with buying or selling a Montreal income property.

The Truth about Mortgage Lenders

Choosing the right mortgage lender for your financial situation can be a tricky task. It’s important to be fully informed before accepting a mortgage contract—any mistakes in the management of your mortgage could prevent your property from generating income and becoming truly profitable. Here are some important things to consider when choosing a mortgage lender.

Mortgage Lender Regulations

The most common mortgage lenders in the country are chartered banks, which according to the Canada Mortgage and Housing Corporation (CMHC) hold 74.6% of total outstanding residential mortgages as of February 2013. The remaining mortgage lenders include life insurance companies, pension plans, trust and loan companies and non-depository financial institutions.

All of these different mortgage lenders are supervised by the Office of the Superintendent of Financial Institutions (OSFI). This regulatory body imposes certain regulations that ensure that mortgage lenders practice non-risky financial activities. OSFI strives for market transparency and careful risk management. OFSI also works closely with commercial banks, which are under provincial jurisdiction, as well as provincial mortgage brokers to ensure fair business practices are being followed.

Residential Mortgage Underwriting Practices and Procedures

In June 2012, OFSI created the Residential Mortgage Underwriting Practices and Procedures, which applied to all federally-regulated financial institutions. The purpose of this policy is to regulate the process of mortgage underwriting and the acquisition of mortgage assets in Canada. The guideline outlined many mortgage lending principals, including the following:

  • Mortgage lenders must perform due diligence in terms of borrower’s background and willingness to service debts.
  • Mortgage lenders must assess borrower’s capacity to meet debt obligations.
  • There must be risk management services to support mortgage underwriting, such as mortgage insurance.

Cancelling or Transferring Commercial Mortgages

Cancelling a commercial mortgage is difficult, and can involve particularly unpleasant consequences. For residential mortgages, the cancellation penalty is generally three months of interest. However, the penalties and fees associated with leaving a commercial mortgage are much higher, making it nearly impossible to break a contract with a lender before its expiry. Even if you manage to transfer the mortgage to another person, most lenders will ask that the original owner stay on the mortgage as a guarantor. Because it is so difficult to get out of a commercial mortgage once an agreement has been signed with a lender, it’s crucial that you know all the information before making such a commitment.

Investing in income real estate is a wise business decision, especially in a city like Montreal that has many desirable properties at good prices. If you want your property to generate income, be smart about the mortgage lender you choose. Staying informed is the key to making the right decisions concerning your income properties in Montreal.

Contact us at Baron Realty for more information on how to make the local real estate market work for you.

Raising More Capital: An Easier Way

While raising capital is a daunting task , but is needed  for all investors that need to raise funds for a new apartment building acquisition, a smart way to raise capital , without having to rely on joint venture partners is paying off the mortgage on our existing home.

In 2013, The Canada Mortgage and Housing Corporation (CMHC) indicated that 68% of recent homeowners felt like they could pay off their mortgage ahead of their amortization schedule which proves to be a great investment, as this same home can be leveraged afterwards to buy another building. We’ll be looking at some of the best measures to put into place to achieve this.

Accelerate Your Payments

Rather than stick to your amortization schedule of paying on a monthly basis or 12 times per year, you can make payments to your house mortgage bi-weekly (every two weeks) instead – which is a little more than double the original amount.

Increasing your payment frequency can shave off 2-3 years on your mortgage depending on how big it is and what your interest rate is. This is a great way to save on interest costs.

Rounding Up Your Mortgage Payments

Example:

Let’s assume you decide to accelerate your payments by doing a bi-monthly payment schedule. If you are in a position where your bi-weekly payments are for instance 654 dollars – round up to the nearest hundred to $700.

The extra $46 you invest won’t hurt your monthly budget much – or at least the sacrifice will be worth it when you are able to take an additional 2-3 years off your already shortened amortization schedule because you chose to pay bi-weekly. (Reminder: The time period you can shorten it by again depends on the cost of your mortgage and the interest rate it is set at).

Remember the amortization schedule can be anywhere from 15-25 years – potentially shortening it by 6 years is a significant amount of time!

Other Ideas

Put off large expenditures during this period – it will draw focus on your mortgage.

Any inheritances, birthday cheques, or raises at work – direct it to your mortgage. You’ll thank yourself in the long-run (verify with your lender some banks have rules about what amount you can prepay every year).

Don’t forget about automatic payments – be conscious of the money you’re putting toward your mortgage.

Go the extra mile and set up an annual payment on top of your regular bi-weekly payments.

If you follow one or more of these tips, you’ll be on a great path for paying off your mortgage far before your amortization schedule, and the beauty in doing so will then help you in using the equity built in the home to refinance, to then buy an apartment building and use the proceeds from this refinance as the needed down payment for the purchase of the apartment building.

Check out our recent sales – and good luck with that mortgage!

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