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Should you Leverage your Home to Buy Rental Property in Ottawa?

15 July 2012

So you already own your own Ottawa mortgage, and you’re thinking of getting another one in the way of rental property. But should you leverage your home to buy rental property in Ottawa?

It’s a good idea, using your home equity to use as a down payment on the purchase of your rental property. And it’s something that many investors do all the time. Often a home equity line of credit, or a HELOC, is the most common way of leveraging your home to buy a rental property in Ottawa; and the question isn’t really whether or not you should leverage your home, but how you should pay the debt back once you do.

The payments on HELOCs are usually interest-only, until the end of the life of the loan, which can be indefinite, depending on your lender. But, this doesn’t mean that you can’t pay back any of the principal. You just need to know if it’s the right thing for you to do or not.

Once you start renting out the property, you’ll also most likely be getting profits back from it every month (rent minus whatever the amount of the mortgage on the property is.) If that profit is enough for you to cover all of your expenses and still have some left over, why not pay off some of the principal? By doing so you’ll have less due on that principal, which means that the following month you’ll have less interest due, and so on and so forth for the months to come. However, if you find that you don’t have enough to still cover all of your expenses, such as if the rental property needed major repairs that month, then you might find that it’s not the best time for you to pay back some of the principal. And that’s okay too.

If you can do something other than pay back the HELOC principal, and that something else will make your money work harder for you, then by all means go ahead and forego paying the principal for a little bit.

The bottom line is that you need to do with your money what’s best for you, and what makes the most sense. If you’re unsure of how your money could work best for you, speak to an Ottawa mortgage broker who can help you figure it out. They’ll not only give you the best advice, but they’ll help you through the HELOC process, and will be an invaluable resource the entire time you own your investment property.

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