Renting condo out - mortgage question

eljay

eljay

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I'm thinking of renting out my current residence which I own and have a mortgage on sometime soon. Question I have is regarding the mortgage. There's a line in there stating that the mortgage holder must be the primary resident or must reside there (I can't remember the exact wording off hand).

I know lots of people just go ahead and rent their places out in this circumstance. I'm wondering from a legal/liability perspective what the risk is.

Now lets say I notify my bank that I will be renting out the place and moving out. What would change? Would they try to make me renew into an investment loan/mortgage or something? Charge mortgage cancellation fee?

I'm going to reiterate, I know lots of people just go ahead and rent their places out in this circumstance. I know the banks more or less look the other way most of the time (or don't look in the first place anyway). So I'm not asking what I could get away with, I'm asking what is the correct thing to do with respect to the mortgage/bank.
 
Did you get your mortgage through a broker? If so, they might answer your questions without the need for you to call your bank.

I'm in the same boat - have rented out my place for the last 15months - spoke with my broker about it and he said it was totally fine to go ahead and rent it out without any fear of reprisal. I do recall that he mentioned when my mortgage was up for renewal, it would be rewritten to remove that clause.

Another option for you would be to speak to your bank and have that clause removed if you have managed your mortgage to date with no penalties. It's such a minor thing, that I would guess a bank would want to keep you as a borrower by removing this clause - especially if you have had this mortgage with them for a while and are not deemed a high risk.
 
Yeah I just found this http://canadianmoneyforum.com/showthread.php/12747-converting-principal-residence-to-rental-property

Looks simple enough. A lot of the stuff on RFD is regarding other financial shenanigans surrounding what can be deemed deductible and not this. This situation is more straight forward. Doesn't sound like the bank will mess around with you unless there's a problem and CRA-wise it's all straight forward, just follow the rules and I'm good to go.

I don't see this as being all that exceptional a situation and I've never encountered someone having an issue.
The big problems come when you try to get cute with investment financing and angling for tax deductions.
 
Tax deduction are easy:
condo fee, property taxes, interest paid but not the capital and heat/hydro if you pay them for your tenant. After this, if you have to fix something like a broken door, you get your tax deduction, but any renovation (anything increasing the price of the property) will not give you a tax reduction. Ok, yes, but from what I've read, it's on 30years....so don't renovate your property. Changing the water heater isn't a renovation, it's maintenance, which is fully deductible.

I've been renting my condo for 3 years now. The only thing that suck its when your tenant doesn't pay...or is late. Mine still owe me 310$ for January, his suppose to pay tomorrow. If he doesn't...well, you can do next to nothing but kick him out. Just make sure to be financially comfortable before doing this.

EDIT: I'm not a pro, and a forum isn't really the best place for this kind of stuff :p
 
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Sorry to hijack but I was wondering if you were going to buy another place? How easy would it be to get a mortgage on a second property?

I'm renting my townhouse for 2 years now but I would prefer to keep renting it and buy myself a condo to live in.
 
Its fine to go ahead and rent out the property. The clause is in there at the beginning of getting the mortgage to differentiate it from being your primary versus being a rental property. what happens after the mortgage has funded is your business.
there is no need to contact the bank to ask them to remove the clause. and in fact they will not remove the clause. you originally got the mortgage in good faith the property would be your primary. things change and its ok to rent it out.
At renewal you would be subject to normal renewal guidelines unless you wanted to refinance the property for more funds in which case the refinance would follow a rental refinance policies.

long and short of it is - you are fine to rent it out
 
Its actually easier to get a 3rd property than a 2nd property due to the way you are qualified.

To qualify for a 2nd property its based on your current income and typically 50% of the rental income. Its possible though.

When you're qualifying for a 3rd or more property its easier because your income is used to make sure you can service the debt on your primary home. Then a rental analysis spread sheet is uses to qualify your rental properties. its a basically a ratio of how much the rents cover the cost. if its positive by .10% than you can get approved. if you're negative cash flow than its decline.

Hope this helps

daisoman said:
Sorry to hijack but I was wondering if you were going to buy another place? How easy would it be to get a mortgage on a second property?

I'm renting my townhouse for 2 years now but I would prefer to keep renting it and buy myself a condo to live in.
Click to expand...
 
silvrsurfr said:
Its actually easier to get a 3rd property than a 2nd property due to the way you are qualified.

To qualify for a 2nd property its based on your current income and typically 50% of the rental income. Its possible though.
Click to expand...


So my income + 50% of my rental income. Isn't that a good thing? After mortgage and property tax and insurance is paid I still make $300/month.
 
not asking about deductions. you are right it is the easy.

vince492 said:
Tax deduction are easy:
condo fee, property taxes, interest paid but not the capital and heat/hydro if you pay them for your tenant. After this, if you have to fix something like a broken door, you get your tax deduction, but any renovation (anything increasing the price of the property) will not give you a tax reduction. Ok, yes, but from what I've read, it's on 30years....so don't renovate your property. Changing the water heater isn't a renovation, it's maintenance, which is fully deductible.

I've been renting my condo for 3 years now. The only thing that suck its when your tenant doesn't pay...or is late. Mine still owe me 310$ for January, his suppose to pay tomorrow. If he doesn't...well, you can do next to nothing but kick him out. Just make sure to be financially comfortable before doing this.

EDIT: I'm not a pro, and a forum isn't really the best place for this kind of stuff :p
Click to expand...
 
exactly what i wondered

silvrsurfr said:
Its fine to go ahead and rent out the property. The clause is in there at the beginning of getting the mortgage to differentiate it from being your primary versus being a rental property. what happens after the mortgage has funded is your business.
there is no need to contact the bank to ask them to remove the clause. and in fact they will not remove the clause. you originally got the mortgage in good faith the property would be your primary. things change and its ok to rent it out.
At renewal you would be subject to normal renewal guidelines unless you wanted to refinance the property for more funds in which case the refinance would follow a rental refinance policies.

long and short of it is - you are fine to rent it out
Click to expand...
 
Yeah it is a good thing. The numbers would have to be reviewed to really see where things lie.

the 300 profit is excellent but qualifying rules state no more than 40% of you monthly household income can be used to pay mortgage cost and your other bills.



daisoman said:
So my income + 50% of my rental income. Isn't that a good thing? After mortgage and property tax and insurance is paid I still make $300/month.
Click to expand...
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