Recently, two of my lenders came out with new products – Interest only mortgages. We have had these available from private lenders for many years but at much higher interest rates. They are useful for real estate investors and people who have consolidated debts and need six months to a year to get back on their feet. These new mortgages are not meant to be short term solutions but they are meant to be used for a minimum of two years and preferably for five years.
So who in their right mind would want a mortgage for five years where the principal doesn’t go down?
1- real estate investors- some investors are looking for cash flow; this is a perfect product for them. They want to keep monthly payments to a minimum so that they ca use the extra cash to buy other properties, or for income to live on. They will eventually sell the properties for a lot more cash when they are ready to retire.
2- Seasonal workers- Lobster fisherman, lumberjacks , oil patch workers and workers in the trades who have to go back to school every year for three years are the people who this product works for. During spring break-up when the oil patch closes for several weeks , the bills don’t stop coming. Working with your Dominion Lending Centres mortgage broker you can design a mortgage to help you through the periods when there’s no income coming in. The best strategy for you may be to step up the mortgage as interest only and then have the broker calculate what a normal amortizing mortgage payment for you would be. During your period of no income, you pay the minimum payments and then when you get back to work, you bump your payment up to normal or even slightly higher to make up for the shortfall.
These interest only mortgages are available with a variable rate, a fixed rate , a variable interest only plus a fixed amortized rate or a combination of any of the above rates. This allows you and your broker to customize mortgage payments to make the best mortgage for your particular situation. It’s like a tailor-made suit. It’s exactly what you need.
Courtesy of David Cooke – AMP – DLC Clarity Mortgages in Calgary, AB.