The lowest possible mortgage payment?
A client recently asked me if there were any tricks out there to maximizing cash flow and minimizing the monthly mortgage payment. At first, I gave the option of an interest only payment but decided to dig deeper and see if there was a trick out there that I was missing. Guess what, there was.
I found a way to reduce an interest only payment by roughly another 30%. You will have to have a re-advanceable mortgage available with a number of lenders through our office. This mortgage option requires you to have at least 20% equity in your property. There is no additional cost to use this type of mortgage; it just needs to be requested in advance. Re-advancable mortgages allow you to re-advance the principle portion of each mortgage payment in the form of a LOC (line of credit).
So here is the trick, it’s actually pretty simple. With each mortgage payment, you re-advance the principle portion immediately to yourself the next day through the LOC after your mortgage payment. This can be set up automatically each month. Now let’s run some numbers so you can see what I am talking about.
- $300,000 Mortgage example
- 30 year Amortization 5 year term *irrelevant
- 3% Current VRM (variable rate mortgage)
- $1,261.81 Monthly mortgage payment
- $516.45 Available cash in LOC from principle payment
- $745.36 New mortgage payment after receiving cash from LOC
*We can still go up to a 40 year amortization with some lenders but they don’t offer a re-advanceable mortgage.
Please keep in mind that you will have an interest only payment on the LOC each month of less than $20 which would double each year. I don’t necessarily suggest you use this technique but it is certainly an option depending on your goals and expectations for the property.
For example: rental income vs. mortgage, strata and property tax costs in downtown Vancouver are horrifically bad. I only suggest purchasing in downtown Vancouver to live or for speculation. In speculation, you anticipate the property to grow in equity and don’t really care too much about paying down the mortgage. In this situation, you want to maximize cash flow by minimizing your mortgage payment.
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Remember to Own Your Life and have a nice day!