Potential landlords may consider buying apartment buildings rather than houses or condominiums because of the lower mortgage rates and greater financial flexibility available.
Apartment buildings are considered commercial property, which allows buyers to qualify for taxpayer-insured mortgages at lower rates than residential buyers.
“Financing for commercial rental property is completely different than financing for residential property. To a large degree, it is a different set of lenders and a different set of lending criteria,” explains Michael Lee, who heads the Vancouver office for Mortgage Alliance Commercial.
Unlike residential investors, who are restricted to putting down at least a 20% on the home, and therefore don’t qualify for Canada Mortgage and Housing Corporation (CMHC) insurance, apartment building investors can arrange CMHC financing with as little as a 15% downpayment.
While residential investors are restricted to 25-year amortization on mortgages, commercial landlords can buy extensions to 30 years or even 40 years.
The main benefit for commercial landlords obtaining CMHC insured mortgages are the low interest rates that can be locked in for long term financing. “Because the loan is insured, there is virtually no risk to the lender, so they are able to offer their absolute best rates,” Lee said.
Current rates for a five-year term for a commercial landlord are around 2.6% and 3.4% for a 10-year term.
As a comparison, residential mortgages at major banks are currently at 4.99% for five-year terms and 6.75% for 10-year terms. Rates are often higher for second homes or investment properties
