Of Prime Interest: Rental income

Rental income can also help offset your mortgage payment

Of Prime Interest column

The cost of purchasing a house in Canada seems to be constantly on the rise with the average price of a single family detached home now at $519,521 (Global Property Guide Canada, 2017). First time home buyers are the consumers who are most often affected by the rising cost of housing, which means that these buyers have to look for alternative strategies to help them enter the real estate market. One strategy is to consider buying a property with the intention of renting out an area of the house to tenants. This rental income may be used to help the potential homeowner qualify for the mortgage or to offset the mortgage payment, hence why the secondary suite or rental suite is often referred to as a mortgage helper.

If the space is a self-contained suite, the borrower may be able to use a portion of the rental income for mortgage qualification. Although Canadian Mortgage and Housing Corporation (CMHC) will consider 100 per cent of the rental income on an insured mortgage application, most lenders will only allow a percentage, typically 50 per cent, of the rental income to be added to the gross household income. For example, if an individual buys a property with 5 per cent down with a suite that rents for $1,200/month, then $600/month can be added to the total household income, which can help you qualify for the mortgage.

Rental income can also help offset your mortgage payment. If your home costs $519,521 the monthly mortgage payment will be $2,233, with five per cent down and a five year fixed term of 2.59 per cent on a 25 year amortization. So if you apply your entire rental income of $1,200/month to the mortgage payment, your monthly payment will drop to $1,033. The additional income covers 54 per cent or just over half of the mortgage payment each month.

For some homebuyers, it may be beneficial to consider adding an income suite to the property if it doesn’t have one. For example, if you only need to spend $25,000 to build the suite and you rent the suite out for $1,200 per month, the suite will pay for itself within two years. Once you have recovered the cost of the suite, you could then consider using the yearly rental income to make an annual prepayment towards your mortgage. Most lenders will allow an annual lump sum payment that is between 10 to 20 per cent of your original mortgage balance. Being a landlord isn’t for everyone, but if you do have the capacity for it, this can be an excellent source of extra revenue.

Of Prime interest is a collaboration of mortgage professionals. Trish Balaberde 250-470-8324, Darwyn Sloat 250-718-4117 Christine Hawkins 250-826-2001.

Just Posted

Reel Reviews: Fear or love

We say, “Once again, one worth seeing, one not.”

Two people safe after falling through ice

Kelowna Fire Department urges caution around icy waters during warm weather

Missing Kelowna woman sought

RCMP are asking for assistance in locating Christine Olsen-Meissnitzer

Plane lands safely after takeoff issue

An airplane departing Kelowna International Airport had an issue with a landing gear, landed safely

KSS rocks and rolls for 37th straight year

Kelowna secondary students let loose with annual Air Bank competition

REPLAY: B.C. this week in video

In case you missed it, here’s a look at replay-worthy highlights from across the province this week

Anti-pipeline protestors block Kinder Morgan tanker near Seattle

Protest was spurred on by the 28 anti-Kinder Morgan activists arrested in Burnaby

Captain Cal Foote is Rockets’ MVP

The Rockets hand out their annual team awards Sunday at Kelowna Community Theatre

Some surprises in new book about B.C. labour movement

“On the Line” charts history of the union movement back to the 1800s

Cancer fundraiser takes to Okanagan Lake

Penticton and Naramata joining growing fundraising event

Elke’s Garden Tips: Good time to prepare

Lake Country garden columnist talks about what to do at this time of the year

Letter: Crying fowl over goose cull witness

Kelowna letter-writer says Canada geese come with many issues

Letter: I was born in Kelowna in 1930…

Kelowna letter-writer has some ideas on how things should run nowadays

How to keep local news visible in your Facebook feed

Facebook has changed the news feed to emphasize personal connections. You might see less news.

Most Read