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The interest rates have been low and the banks are looking for ways to increase their share and make more money but I was disturbed by the announcement by Finance Minister asking the banks not to get into a rate fight. While I understand why the Finance minister is asking for the banks not to get into rate wars, I see a great opportunity for investors to cash in on this opportunity so Mr. Flaherty, Hands off the interest rates!
I should give credit where credit is due and I was chimed into this during our monthly meeting at Real Estate Investment Network meeting two weeks ago by Don Campbell.
If you have any mortgages, I would be looking to see if you can reduce your interest rates on them. Cash flow is king when generating passive income from real estate investments and one of the biggest draw on our cash flow is the interest payments we make. Let’s do the math.
If you had gotten a $750,000 commercial mortgage for a residential multiplex about four years ago, you would’ve gotten a rate around 4%, you’re making a payment of $3,945.15 per month with total interest of $433,545.46.
Last approval I saw for a client from TD Canada Trust for a similar property was at 2.85% which would result in a monthly payment of $3,491.87 and total interest payable $297,560.93.
This means that you can increase your monthly cash flow by $453.28 and save interests of $135,984.53 over the course of 25 years.
I would be calling my mortgage broker to do my math and see if this is the right option. Don’t forget that this money costs money so do take into account your mortgage cancellation penalties, mortgage broker and lending fees.
As for Mr. Flaherty, I say, please keep your hands off the banks and let them duke it out. If this was any other industry, we would be looking at the Commissioner of the Competition Bureau, Melanie Aitken, chiming in but it doesn’t look like we will be seeing an intervention from them.
Take advantage of this situation and make the best of it! If BMO offers you a 10 year rate, make sure it’s assumable and sign on! It’s a short window so do jump on it!
Happy Investing!
