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General Category => Personal Finance => Topic started by: clutch on January 13, 2021, 07:13:33 PM

Title: Collateral mortgage and future borrowing capacity
Post by: clutch on January 13, 2021, 07:13:33 PM
I'm currently in the process of closing a rental property and the mortgage offer with the lowest interest rate is a collateral mortgage.

As I'm learning the pros and cons of a collateral mortgage, one question I had was... Could having a large collateral charge (I heard 125% of the property value) affect my future borrowing capacity? We are planning to buy a bigger place for our principal residence in a year, so we would be applying for a larger mortgage than we have now... Would a collateral charge on my rental property affect how much mortgage I could get for my principal residence?

Thanks. (I'm in Canada, btw)
Title: Re: Collateral mortgage and future borrowing capacity
Post by: bizaro86 on January 14, 2021, 10:08:58 AM
I have a number of rental properties with collateral mortgages, and I always get them to put the maximum lien on the property (they tend to not want to do more than 125% for reasons that don't make sense to me).

When I've applied for new mortgages, they use the actual funds available for the debt service ratios.

But if you have available heloc capacity they may include that in the calculation. But I've never seen anyone use the collateral value registered on the lien, because you generally need to get a new appraisal and qualify again to up your borrowing limit.
Title: Re: Collateral mortgage and future borrowing capacity
Post by: clutch on January 14, 2021, 11:26:15 AM
Great, thank you!