If you own an investment property that earns you rental income, odds are you might be able to refinance into a lower interest rate, especially if you’ve been paying a mortgage on the property for several years.
With mortgage rates still at affordable levels, you might be able to lower your monthly payments. Given this is not your primary residence, refinancing an investment property will not work in the exact same manner. Your lender might have a more stringent set of requirements for you to meet, and additional documentation might be needed.
Here’s how to refinance an investment property in three steps.
1. Consider If Refinancing Is Right For You
As the owner of an investment property, your reasons for refinancing will be very different from the average homeowner. Here are some good reasons for refinancing an investment property.
You can change the loan terms so that the repayment period is longer, thereby slashing your monthly payments. Or you can shorten the repayment window to pay off the debt faster.
If you’ve accumulated equity in the property over several years, you can refinance for a higher amount than you owe on the original mortgage. This cash-out refinancing frees up funds to cover other large debts or personal expenses.
The money from the refinancing could be used to pay for home improvement projects in your investment property. This would increase its value and boost its appeal to potential tenants.
You can also use the cash from the refinancing as a downpayment to buy another investment property.
Questions to Ask Yourself
Before applying for a refinance, here are some things you should ask:
Will refinancing help achieve your financial objectives?
Have you built up enough equity in your home to make refinancing worthwhile?
Do investment property refinance rates offer savings over your current rate?
Do you plan to own the property for a long time?
2. Do the Math Before Applying for a Refinance
Before you make the decision to refinance any property, you should run the numbers on the length of time it will take to break even on the transaction. Start by researching refinancing rates from various lenders (at least three) to confirm you can secure a lower rate than what you are currently being charged on the original mortgage loan.
You can then calculate the refinance break-even point by factoring in all the upfront costs of refinancing the loan—the lender’s fees plus the other closing costs—against how much you would save each month. Comparing these numbers will help determine approximately how long it will take to break even and begin saving money.
If you have no intention of owning the property for that length of time, then refinancing the investment property does not sound like the best financial move; it will cost you more than the savings you can extract.
3. Refinance Your Investment Property
Once you have decided that refinancing is a good option, there are some steps you will need to take in order to get approved by your lender.
Prepare Your Documentation
Proof of income. You should typically have pay stubs for the last 30 days.
Homeowners insurance. All mortgage lenders will require this to ensure your investment has current and adequate coverage.
Tax returns and W-2 forms. Required to help verify your employment and income history. If you are self-employed, the lender will also require recent tax returns and bank statements.
Asset information. Account statements for brokerage, checking, savings and 401(k) accounts. The lender needs to be confident you can cover the closing costs as well as future unforeseen expenditures.
Title insurance. Your lender will use this to verify taxes, ensure your name is on the title and confirm the legal description of the property.
Rental agreements. This helps the lender evaluate the profitability of your investment property or properties.
Appraisal. During the refinancing process, your lender will order a property appraisal to evaluate its current value and ascertain its rental income potential. They also want to know if the home has enough equity to qualify for refinancing.
Lenders’ Refinancing Requirements
In order to get approved for refinance, the lender will look at your financial profile to make sure you can prove your ability to repay the mortgage. Though requirements may vary with lenders, they typically require the following.
Your equity exceeds the loan amount. When refinancing a rental property, the bank will check that the value of the property is more than the current balance on the mortgage. Lenders prefer you have at least 25% equity in the home.
Credit score. Most lenders will approve your refinancing application with a credit score of at least 640, but a score of at least 680, in the good or excellent range, will often get you a lower interest rate.
Cash reserves. You will likely need to have cash that equals up to a year’s worth of mortgage payments. The minimum required amount will be calculated based on your new mortgage payments, and if you own other properties.
Eligible income. Your income will also impact your odds of success. Beyond the income coming from the rental property itself, you will likely have to show other earnings to assure the lender you can easily cover the monthly payments, especially when the property is not rented out.
Debt-to-income (DTI) ratio. The bank will want to verify that you aren’t loading yourself up with too much debt. This is calculated by dividing your total monthly debt payments by your monthly income. Typically, you’ll need a DTI under 43% but no more than 50%.
Closing costs. Average closing costs on a refinance are approximately $5,000. The size of your loan and the location of the property will significantly impact how much you pay. These costs are very similar to what you paid when you purchased your home, including the mortgage origination fee and other charges.
Best Mortgage Refinance Lenders of 2022
Find the best Mortgage Refinance Lenders for your needs.
As with any mortgage or refinance, it’s crucial to shop around since some lenders might offer you a lower rate or no fees to gain or keep your business. Make sure you understand your financial situation and credit profile ahead of time since this will help the lender give you a more accurate quote from the start.
TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.
The S&P/TSX composite index was up 254.62 points at 23,847.22.
In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.
The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.
The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.
The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.
This report by The Canadian Press was first published Sept. 19, 2024.
Losing a loved one is never easy, and the legal steps that follow can add even more stress to an already difficult time.
For years, families in Vancouver (and Canada in general) have struggled with a complex probate process—filled with paperwork and legal challenges.
Thankfully, recent changes to Canada’s probate laws aim to make this process simpler and easier to navigate.
Let’s unearth how these updates can simplify the process for you and your family.
What is probate?
Probate might sound complicated, but it’s simply the legal process of settling someone’s estate after death.
Here’s how it works.
Validating the will. The court checks if the will is legal and valid.
Appointing an executor. If named in the will, the executor manages the estate. If not, the court appoints someone.
Settling debts and taxes. The executor (and you) pays debts and taxes before anything can be given.
Distributing the estate. Once everything is settled, the executor distributes the remaining assets according to the will or legal rules.
Probate ensures everything is done by the book, giving you peace of mind during a difficult time.
Recent Changes in Canadian Probate Laws
Several updates to probate law in the country are making the process smoother for you and your family.
Here’s a closer look at the fundamental changes that are making a real difference.
1) Virtual witnessing of wills
Now permanent in many provinces, including British Columbia, wills can be signed and witnessed remotely through video calls.
Such a change makes estate planning more accessible, especially for those in remote areas or with limited mobility.
2) Simplified process for small estates
Smaller estates, like those under 25,000 CAD in BC, now have a faster, simplified probate process.
Fewer forms and legal steps mean less hassle for families handling modest estates.
3) Substantial compliance for wills
Courts can now approve wills with minor errors if they reflect the person’s true intentions.
This update prevents unnecessary legal challenges and ensures the deceased’s wishes are respected.
These changes help make probate less stressful and more efficient for you and other families across Canada.
The Probate Process and You: The Role of a Probate Lawyer
(Image: Freepik.com)
Working with a probate lawyer in Vancouver can significantly simplify the probate process, especially given the city’s complex legal landscape.
Here’s how they can help.
Navigating the legal process
Probate lawyers ensure all legal steps are followed, preventing costly mistakes and ensuring the estate is managed properly.
Handling paperwork and deadlines
They manage all the paperwork and court deadlines, taking the burden off of you during this difficult time.
Resolving disputes
If conflicts arise, probate lawyers resolve them, avoiding legal battles.
Providing you peace of mind
With a probate lawyer’s expertise, you can trust that the estate is being handled efficiently and according to the law.
With a skilled probate lawyer, you can ensure the entire process is smooth and stress-free.
Why These Changes Matter
The updates to probate law make a big difference for Canadian families. Here’s why.
Less stress for you. Simplified processes mean you can focus on grieving, not paperwork.
Faster estate settlements. Estates are settled more quickly, so beneficiaries don’t face long delays.
Fewer disputes. Courts can now honor will with minor errors, reducing family conflicts.
Accessible for everyone. Virtual witnessing and easier rules for small estates make probate more accessible for everyone, no matter where you live.
With these changes, probate becomes smoother and more manageable for you and your family.
How to Prepare for the Probate Process
Even with the recent changes, being prepared makes probate smoother. Here are a few steps to help you prepare.
Create a will. Ensure a valid will is in place to avoid complications.
Choose an executor. Pick someone responsible for managing the estate and discuss their role with them.
Organize documents. Keep key financial and legal documents in one place for easy access.
Talk to your family. Have open conversations with your family to prevent future misunderstandings.
Get legal advice. Consult with a probate lawyer to ensure everything is legally sound and up-to-date.
These simple steps make the probate process easier for everyone involved.
Wrapping Up: Making Probate Easier in Vancouver
Recent updates in probate law are simplifying the process for families, from virtual witnessing to easier estate rules. These reforms are designed to ease the burden, helping you focus on what matters—grieving and respecting your dead loved ones’ final wishes.
Despite these changes, it’s best to consult a probate lawyer to ensure you can manage everything properly. Remember, they’re here to help you during this difficult time.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
