The Interest-Only Mortgage

Michael Hallett • Sep 17, 2019
Relatively self-explanatory, an interest-only mortgage is one where your entire mortgage payment goes to interest and does not pay down the principal mortgage amount at all. So at the end of your term, you will owe the same amount as when you got your mortgage.

So you might be asking yourself, what are the advantages? Well, an interest-only mortgage frees up your cash flow. As you’re not responsible for paying down the principal balance, you can expect a lower mortgage payment. The interest-only mortgage shines as a management tool for rental properties, where cash-flow is king.

Here’s an example. On a $400k mortgage balance, over 25 years, at a 4% interest rate, the monthly repayment on an amortized mortgage would be roughly $1902/mth. However, as an interest-only mortgage, the payment is $1,321/mth, providing you with an extra $580 in monthly cash flow.

The money you save by not paying down the principal of your mortgage can be used however you like. It could be used to pay off higher interest debts like credit cards, unsecured line of credits, or any other high-interest loans. Or it could be used to offset the increased cost of maintaining your home through retirement; property taxes certainly aren’t going down anytime soon. It could even be used to maintain your current lifestyle if you're planning retirement.

Regardless of what you decide to do with the extra cash, the choice is yours. If you would like to discuss the option of an interest-only mortgage (or any other mortgage product for that matter), please contact me anytime!

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Getting a Mortgage While on Parental Leave

By Michael Hallett • 01 May, 2024
Chances are if the title of this article piqued your interest enough to get you here, your family is probably growing. Congratulations! If you’ve thought now is the time to find a new property to accommodate your growing family, but you’re unsure how your parental leave will impact your ability to get a mortgage, you’ve come to the right place! Here’s how it works. When you work with an independent mortgage professional, it won’t be a problem to qualify your income on a mortgage application while on parental leave, as long as you have documentation proving that you have guaranteed employment when you return to work. A word of caution, if you walk into your local bank to look for a mortgage and you disclose that you’re currently collecting parental leave, there’s a chance they’ll only allow you to use that income to qualify. This reduction in income isn’t ideal because at 55% of your previous income up to $595/week, you won’t be eligible to borrow as much, limiting your options. The advantage of working with an independent mortgage professional is choice. You have a choice between lenders and mortgage products, including lenders who use 100% of your return-to-work income. To qualify, you’ll need an employment letter from your current employer that states the following: Your employer’s name preferably on the company letterhead Your position Your initial start date to ensure you’ve passed any probationary period Your scheduled return to work date Your guaranteed salary For a lender to feel confident about your ability to cover your mortgage payments, they want to see that you have a position waiting for you once your parental leave is over. You might also be required to provide a history of your income for the past couple of years, but that is typical of mortgage financing. Whether you intend to return to work after your parental leave is over or not, once the mortgage is in place, what you decide to do is entirely up to you. Mortgage qualification requires only that you have a position waiting for you. If you have any questions about this or anything else mortgage-related, please connect anytime. It would be a pleasure to work with you.

Bridge Financing and Deposit Lending

By Michael Hallett • 24 Apr, 2024
Let’s say you have a home that you’ve outgrown; it’s time to make a move to something better suited to your needs and lifestyle. You have no desire to keep two properties, so selling your existing home and moving into something new (to you) is the best idea. Ideally, when planning out how that looks, most people want to take possession of the new house before moving out of the old one. Not only does this make moving your stuff more manageable, but it also allows you to make the new home a little more “you” by painting or completing some minor renovations before moving in. But what if you need the money from the sale of your existing home to come up with the downpayment for your next home? This situation is where bridge financing comes in. Bridge financing allows you to bridge the financial gap between the firm sale of your current home and the purchase of your new home. Bridge financing allows you to access some of the equity in your existing property and use it for the downpayment on the property you are buying. So now let’s also say that it’s a very competitive housing market where you’re looking to buy. Chances are you’ll want to make the best offer you can and include a significant deposit. If you don’t have immediate access to the cash in your bank account, but you do have equity in your home, a deposit loan allows you to make a very strong offer when negotiating the terms of purchasing your new home. Now, to secure bridge financing and/or a deposit loan, you must have a firm sale on your existing home. If you don’t have a firm sale on your home, you won’t get the bridge financing or deposit loan because there is no concrete way for a lender to calculate how much equity you have available. A firm sale is the key to securing bridge financing and a deposit loan. So if you’d like to know more about bridge financing, deposit loans, or anything else mortgage-related, please connect anytime! It would be a pleasure to work with you.
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