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Income Property Real Estate Agency

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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