Real Estate

Interest Only Mortgage - Builders are offering - A sign of the softening market?

  • Last Updated:
  • Jan 17th, 2019 1:24 pm
[OP]
Deal Fanatic
Feb 29, 2008
6699 posts
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Interest Only Mortgage - Builders are offering - A sign of the softening market?

I must say, one of the offers I saw was very tempting, and almost took it until I thought about it some more. This wouldn't have been an option 5 years ago. Why? Because the market was HOT and rates were not going up.

Today though, the market is cooling and we know interest rates will be going up. Offer was 3 years at 2%. There's no telling where the market will be in that time and whether the property will go up in value.

Thoughts?
41 replies
Deal Fanatic
Feb 22, 2011
5372 posts
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Toronto
Do you have an example? I haven't seen these.
Newbie
Oct 27, 2018
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I read in an Australian article, some people got them to maintain rental properties. But these people got screwed when the lender later changed the covenants and required partial principle payments later on. I'm not sure whether the covenants were changed at renewal. In the end, payments went up and this greatly reduced monthly cashflow. The declining Sydney housing market did not help either. Make sure to read the covenants.
Jr. Member
Jul 14, 2009
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Richmond Hill
Where!? I want one! Or now two cause I can afford it!
Deal Addict
Jul 14, 2002
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rjg4235 wrote:
Oct 29th, 2018 9:31 am
Do you have an example? I haven't seen these.
I saw that last month too off an ad for Dunpar precon homes in mississauga.
Can't remember the rate, 3.xx% something for a few years. It's not listed on their site, but I remember it was on the ad and I clicked into it just out of curiousity.
http://www.dunparhomes.com/admin/tag/dream-home/
[OP]
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Feb 29, 2008
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dantey wrote:
Oct 29th, 2018 10:47 am
I saw that last month too off an ad for Dunpar precon homes in mississauga.
Can't remember the rate, 3.xx% something for a few years. It's not listed on their site, but I remember it was on the ad and I clicked into it just out of curiousity.
http://www.dunparhomes.com/admin/tag/dream-home/
Ding ding
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Dec 13, 2016
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JayLove06 wrote:
Oct 29th, 2018 2:07 pm
Grow up.
Where?

In a mimico retirement condo for a bargain price of 240k and almost 2k in condo fees?
[OP]
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Feb 29, 2008
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BiegeToyota wrote:
Oct 29th, 2018 2:12 pm
Where?

In a mimico retirement condo for a bargain price of 240k and almost 2k in condo fees?

They have a few projects with that deal. It’s not bad as long as you have the money. 20% down required.
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Feb 2, 2014
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rjg4235 wrote:
Oct 29th, 2018 9:31 am
Do you have an example? I haven't seen these.
There are monoline lenders that offer it up to a 30-year amortization.

It's not a sign of the market softening. Those products are aimed at investors who are cash flow driven.
Kevin Somnauth, CFA
Mortgage Broker - Mortgage Architects (#10287) and Real Estate Salesperson - Century 21 Innovative
[OP]
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Feb 29, 2008
6699 posts
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CdnRealEstateGuy wrote:
Oct 29th, 2018 3:27 pm
There are monoline lenders that offer it up to a 30-year amortization.

It's not a sign of the market softening. Those products are aimed at investors who are cash flow driven.
Aren’t these the kind of deals that really started the US housing crash? It’s good but f you have money but just want cash flow but if your property value drops you’re kinda screwed. I’m not sure if this is a good idea seeing as rates are going up. What are your thoughts?

Can see how people could over reach here.
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Feb 2, 2014
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JayLove06 wrote:
Oct 29th, 2018 5:28 pm
Aren’t these the kind of deals that really started the US housing crash? It’s good but f you have money but just want cash flow but if your property value drops you’re kinda screwed. I’m not sure if this is a good idea seeing as rates are going up. What are your thoughts?

Can see how people could over reach here.
The US housing crash happened because borrowers were getting funds with no to little qualification. Canada is much more regulated.

With the interest only mortgage, borrowers still have to qualify just like any other mortgage.

So given qualifications are still the same (ie BOC posted rate), a person taking this product shouldn't be any more likely to default on payments.
Kevin Somnauth, CFA
Mortgage Broker - Mortgage Architects (#10287) and Real Estate Salesperson - Century 21 Innovative

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