Real Estate

Interest only mortgage

  • Last Updated:
  • Jul 8th, 2020 1:25 pm
[OP]
Sr. Member
Dec 19, 2010
797 posts
252 upvotes

Interest only mortgage

Do interest only mortgages exist in Canada? A friend shared a roundabout way in that a secured line of credit is obtained (60% of the value of the home) and because it's a line of credit, minimum payments would be interest only. I know these were offered in the US and a contributing factor to upside down loans when house prices fell. Do such interest only products exist for residential principal home lending?
4 replies
Deal Addict
Jul 3, 2007
2718 posts
2851 upvotes
Toronto
callmebob wrote: Do interest only mortgages exist in Canada? A friend shared a roundabout way in that a secured line of credit is obtained (60% of the value of the home) and because it's a line of credit, minimum payments would be interest only. I know these were offered in the US and a contributing factor to upside down loans when house prices fell. Do such interest only products exist for residential principal home lending?
at one time there was one, try TD and max out the LOC part which is interest only
Deal Guru
Feb 29, 2008
12531 posts
7722 upvotes
I haven't seen a bank offer this. The builder community offers them sometimes for 2-3 years.

Funny how those who talk about US-style crashes happening here never, ever, ever talk about the interest only mortgages that were offered by banks. Australia had the same issue as well.
Deal Addict
Jul 3, 2007
2718 posts
2851 upvotes
Toronto
JayLove06 wrote: I haven't seen a bank offer this. The builder community offers them sometimes for 2-3 years.

Funny how those who talk about US-style crashes happening here never, ever, ever talk about the interest only mortgages that were offered by banks. Australia had the same issue as well.
the ones that went from $1500 a month payment to $3500 in 12 months?? ya those were destined for disaster

our worst product was a 40 year mortgage ....and it wasnt even that bad

you can still get 35 years here and contract rate qualifying , but its with alt lenders....
Deal Addict
Apr 5, 2009
1096 posts
292 upvotes
callmebob wrote: Do interest only mortgages exist in Canada? A friend shared a roundabout way in that a secured line of credit is obtained (60% of the value of the home) and because it's a line of credit, minimum payments would be interest only. I know these were offered in the US and a contributing factor to upside down loans when house prices fell. Do such interest only products exist for residential principal home lending?
In theory you could do a HELOC in lieu of a traditional mortgage, but the interest tends to be higher, there is a lower LTV max (unless you go with a credit union), and generally HELOC's are harder to qualify for. You also run the risk with a HELOC that the bank could start to amortize the HELOC or make the payments 3% of balance instead of interest only.

If cashflow is the goal, a bank is willing to approve you, and you had the income and equity (eg. 500k bal. on a $1m property)... You could do take out a mortgage @ 500K and a HELOC at lets say $100K. Make your mortgage payments through the HELOC, and then make your minimum payments to your HELOC (essentially just transferring the mortgage balance to the HELOC and letting interest compound). That being said... if you had the cash and equity, not sure why someone would do this as your debt will just increase slowly.

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