Back to school! Making an investment vs. residences or renting

The costs of renting/living in residence and tuition for students can be overwhelming these days. Investing in real estate to help offset some of the expenses associated with post secondary education is something you may wish to consider. It may help out both you and your son or daughter.

Some factors to take into consideration:

Canada Mortgage and Housing Corporation, CMHC in recent years changed their policy so that you can now borrow up to 90% of appraised value of your principal residence. (Less the outstanding mortgage). These new funds can be used for a variety of purposes such as debt consolidation, investing or as funds for a down payment for purchasing an investment property that your son or daughter could live in close to their university or college.

The refinancing of your home could be done either with your current institution or a new mortgage could be looked at. A comparison would need to be done to see if refinancing with your current institution or taking advantage of the lowest mortgage rates in a long time, currently as low as 5.1%* is more beneficial to you. The advantages could be twofold, saving interest on your current mortgage, which could help pay down your principal faster and providing a down payment for the new investment property, which theoretically could be purchased with little or no cash investment from your portfolio. Depending of course on the size of funds available from your existing mortgage.

A second mortgage or secured line of credit against your principal residence would also be an option. Another factor to take into consideration is that if the property being considered was a duplex or a triplex then the additional rents you receive from the other units may cover your mortgage payments. The interest rate for buying an investment property is still the same as with a new residence. Interest rates are currently as low 5.1%* for 5 years.

However, each individual situation is different so you need to consider all available options and choose the one that best fits your personal situation. It is also important to speak to qualified mortgage professionals when making your decision.