What factors should borrowers consider when looking for mortgage financing?
Apartment owners need to educate themselves on the many aspects of the financing process before choosing a lender. For starters, borrowers should not try to ‘commoditize’ the lending industry. Many landlords make the mistake of shopping around to save two or three basis points on their interest rate. They don’t always take into account other costs associated with borrowing, including processing fees, legal fees and third-party report costs.
Also, the length of time it takes to finance a property today has increased. Lenders are now expected to have a thorough knowledge of their client, and must obtain full disclosure of the borrower’s ownership structure to ensure a successful closing. These new government regulations implemented after the credit crisis are strictly enforced, and therefore may cause delays in funding and affect the borrower’s ability to set their rate.
The Canada Mortgage and Housing Corporation (CMHC) should be the borrower’s first consideration when financing their buildings. CMHC-insured financing continues to be the first choice for the majority of landlords in Canada. In fact, it is common for large institutional landlords to finance their entire apartment portfolios with CMHC. The main reason for considering the CMHC is the availability of lower interest rates compared to other conventional options.
The relationship between a borrower and lender is an important one. Therefore, borrowers should build a long-term partnership that creates a winning philosophy for both parties.
Peter Cook is the assistant vice-president of commercial lending at First National Financial LP.