FINA 210 Chapter Notes - Chapter 1: Cash Flow, Debt Service Ratio, Business Cycle
1 Oct 2015
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Intrinsic need and demand for real estate investment. Minimum down payment, the rest is borrowed using the property itself as security. High-ratio financing (ratio between the debt, mortgage of 90%, and equity, your down payment of 10%, is high) Skill and knowledge required not difficult to attain. Using a small amount of your own money and borrowing the rest. If the lender has to sell, the net proceeds after the sale should atleast cover the amount of the mortgage (especially considering historical appreciation in value). If the investor leverages up the property too high (mortgage of 95%), and the market moves into a declining part of the cycle, then the investor and the lender are at risk. Higher the amount of the mortgage = higher the risk to the lender = higher the interest rate paid by the borrower (unless the mortgage is insured) Only two companies in canada insure high-ratio mortgages (cmhc & mortgage.
