As a homeowner, the longer that you manage your mortgage, the more you’ll pay in interest. Over the course of several years, your total interest costs could amount to tens or even hundreds of thousands of dollars. Therefore, it is not hard to see why many buyers look to pay off their mortgage as quickly as possible.
As a veteran team of agents in West Toronto and Etobicoke, we work closely with buyers, homeowners, and investors to help them reach and exceed their real estate goals. In this blog, we’ll highlight a selection of preemptive and hands-on strategies for paying off your mortgage sooner.
Buying or selling a home? Discover our strategic advisory services. Call us at 416-722-4723 or reach us by email at evan@christensengroup.ca.
Choose the Right Mortgage
As a homeowner, landing the best possible mortgage terms and conditions based on your income, assets, and long-term goals is fundamental to a life of financial security. With that in mind, paying off your mortgage efficiently starts by selecting the right mortgage in the first place.
It’s a common misconception that Canadian lenders offer identical mortgage terms for home buyers. In reality, every lender has their own policies, products, and interest rates. Before committing to a bank or lender, it’s important to ensure that they’re well-positioned to meet your needs.
One way to simplify this process is to seek professional help – either a mortgage broker or a reputable real estate agent. Mortgage brokers are licensed professionals with direct access to banks and other financial institutions. They’re experts in which mortgage products are currently available and can help you pick the right lender and terms.
Alternatively, you can also ask your real estate agent for a personalized recommendation on which mortgage provider may suit your needs best. A reputable and established agent will have personal relationships with local lenders and be similarly knowledgeable about which mortgage products may be available to you.
Preparing to buy a home? Explore these related readings for more insights on home financing.
- Can You Have More Than One Mortgage at a Time?
- 5 Reasons to Obtain Mortgage Pre-Approval
- What Not to Do Once You Have Mortgage Pre-Approval
Power of Passive Income
One increasingly common strategy for homeowners who are looking to pay off their mortgages faster is to host tenants. In fact, some first-time buyers are intentionally searching for a home with an existing secondary suite, or the space needed to create one. Despite the relative simplicity of this concept – which is occasionally referred to as house-hacking, the potential benefits are immense.
Over the past few years, average rental rates in Toronto have demonstrated consistent escalation before finally balancing out in recent months. To that end, landlords are earning greater returns than ever before.
As a homeowner, you could be earning close to or upwards of two thousand dollars simply by having a tenant. These funds can be directly applied toward your mortgage – increasing your monthly contributions, and in turn, helping you pay it off faster.
Creating a Rental Suite in Your Home
Renting out a portion of your home can be an efficient and low-maintenance way to earn reliable income for offsetting mortgage costs. That said, if you don’t have a secondary suite on your property, you’ll need to create one.
Creating a legal and profitable secondary is no minor process. In fact, the logistics and financial implications involved can be significant. However, with adequate planning and proper professional guidance, you can navigate the process with limited stress and ensure you’re set up for a lucrative investment.
Thinking about adding a rental unit to your home? Explore these related resources for more advice.
- How to Build a Rental Suite in Your Toronto Home
- How Will a Changing Real Estate Market Impact Landlords?
- Are You Ready to Become a Landlord?
Financial Planning
Constructing a secondary suite requires comprehensive financial planning to ensure you’re effectively able to turn a profit.
The most significant financial variable in building and operating a secondary suite is the upfront investment. Exact costs will be dependent on the scope of the project, preferred timelines, and the condition and age of your home. For an accurate estimation and how much capital this project may require, consult with a reputable contractor or architect.
Finally, your financial plan should also account for taxation. In Canada, earnings from an in-house or standalone rental property are considered income. Therefore, you will be taxed on your earnings as you would be with a primary income source. For more precise insights on how this could impact your ROI, speak with your personal financial advisor or tax professional.
Following Regulations
In addition to financial planning, adding a secondary suite to your home requires careful consideration of local laws and regulations. Like any major home renovation, rental suites are impacted by red tape at both a municipal and provincial level. These legalities impact both the pre-construction and construction processes, as well as the ongoing operation of your rental.
Zoning & Permits
First, you will need to confirm your zoning eligibility before breaking ground. In Toronto, most zoning areas or neighbourhoods permit rental units. However, you could be required to apply for rezoning or a minor variance in rare instances. After verifying zoning compliance, there are other requirements that must be met in order for your secondary suite to be considered legal.
You also can’t start construction without official approval from the City. Adding a secondary suite to your home will involve obtaining the required permits. You (or your contractor) will be tasked with filling out and filing a series of documents and applications in order to get the right permits.
Building Code Standards
Any rental suite added to a home in Toronto must comply with the Ontario Building Code, which outlines physical property requirements for ceiling heights, fire separation, means of entry and exit, windows, ventilation, and natural lighting. Failing to adhere to these requirements could result in fines or other penalties.
Setting Up a Successful Investment
Toronto’s exceptionally active rental landscape presents a high degree of opportunity for prospective landlords. However, a maximum ROI rental doesn’t happen without adequate execution.
Just like pricing a home for sale, your rental rate should consider recent market data as well as any aspects of your property that are unique or in demand. Pricing too low may leave money on the table while overpricing could limit your pool of candidate tenants.
Sourcing the right tenant is crucial to safeguarding your investment. You won’t just be looking for someone who is respectful but also a candidate who mitigates the risk of financial losses or income gaps. To that end, creating a comprehensive tenant screening process is essential. At a minimum, all serious candidates should present legal identification, a credit check, a list of references from current and previous landlords, and both employment and income history.
Searching for more insights related to property values and real estate investment? Explore these related posts from our blog.
- 4 Surprising Factors That Influence Toronto Property Values
- What Investors Should Know About Toronto’s Municipal Accommodation Tax
- Is it Possible to Take the Risk Out of Real Estate Investing?
New Opportunities
Perhaps you have reservations about having a tenant in your home – there are other options available. Although laneway homes (also called garden suites) have only joined Toronto’s housing profile in the past ten years, their impact has been palpable.
Laneway homes are independent, detached properties built behind or beside your home, which offer a myriad of advantages for homeowners from an investment perspective. Market data shows that a two-bedroom laneway suite and a two-bedroom condo with similar square footage can earn the same monthly rental income. These funds can likewise be used to pay off your mortgage more efficiently.
Using condos as a basis for comparison, demonstrating the investment potential of a laneway home is simple. While building a laneway home does entail hard costs upfront, they are typically much lower compared to the costs per square foot of a condo.
Searching for an in-depth exploration of laneway homes and their advantages? Click here to read our blog post on the topic.
Considerations & Responsibilities
Adding a tenant to your property can be an effective way to offset mortgage costs and pay off your loan sooner. However, there are certain factors to be mindful of before you start looking for move-in candidates.
From a legal perspective, hosting tenants in your home makes you a landlord – a role with numberable responsibilities, processes, and regulations attached. This is the case whether you rent out a spare, unmodified room or have a dedicated secondary suite on the property. To that end, you must familiarize yourself with your formal responsibilities before you source tenants and begin collecting payment.
It is crucial to effectively manage and undertake your obligations as a landlord. This may sound anxiety-inducing, however, it’s a far less intensive experience than many first-time landlords anticipate.
Some investors elect to hire a third-party management service, eliminating the responsibilities of tenant screening, rent collection, maintenance, and repairs. While this path can create a labour-light investment experience, it ultimately harms your bottom line – which can undo the benefit of hosting tenants in the first place. If you have only added a single secondary suite to your home or are managing a small handful of tenants, you should be able to manage your landlord duties comfortably.
Searching for a home with investment potential? We can help. Call 416-722-4723 or reach us by email at evan@christensengroup.ca.
