Peter, Stanley, Rix Milne
Sales Representative

RE/MAX Escarpment Realty Inc., Brokerage

office:905-631-8118
voice:905-632-8280
cell:647-227-7767
Visit me on Facebook
Visit me on LinkedIn
My videos on YouTube
Personal Information
Search For Property
Buying Home
Selling Home
Information Center
Important Resources
Client Reports
Best Fixed - 1 year
2.44%
Best Fixed - 5 year
2.64%
Best Variable - 5 year
1.94%
Helpful Tips For Buyers

 

 
 

Rent or Lease to Buy

The idea of rent to own has been getting a lot of media attention lately as buyers in all geographic areas and economic positions look for ways to have their money work more effectively for them.
 
 
The “rent to own” strategy has been very active in the United States for years, and with the newly increased media attention it is starting to become a more viable option for home ownership in Canada as well.
 
 
 
 
Who Would “Rent to Own”?
 
 
Rent to own is mostly used by those who would not normally qualify for a mortgage through a regular bank application. This could be due to not having an adequate down payment, or hiccups on their credit history, or they may be behind in Revenue Canada payments. Some who are self-employed or have occupations with unverifiable incomes may also consider the rent to own option.
 
 
 
 
How Does it Work?
 
 
This option, also commonly referred to as lease to own or option to purchase, works by having the tenant pay a certain amount for a set period of time. After that time, the tenant has the option to purchase the property for a lump sum, minus any previous rent payments applied to the purchase price.
 
 
There is usually a predetermined, initial deposit from the prospective tenant. Here is an example of how rent to own could work.
 
 
Purchase Price $350,000.00
 
 
Deposit $5500
 
 
Monthly Cost $2000 (Rent = $1500 and credit toward home purchase = $500)
 
 
After 24 months the full required 5% down payment is saved:
 
 
$5500 + (24 X $500) = $17,500
 
 
You would then need a mortgage of $332,500 to complete the purchase of the home.
 
 
 
 
Make Sure You Have a Plan
 
 
For whatever reason you are looking at “rent to own”, ensure that you have done your homework and that you have an action plan to ensure your investment is safe. If you have credit issues, ensure you work with me to get a plan in place to rebuild your credit. If you have self employed income, seek ways to have your income verified. I can assist with this as well.
 
 
 
 
Read the Fine Print
 
 
So here are some things that may not be readily available to the general consumer:
 
 
There is no standard contract for “rent to own” in North America
 
 
Rent to own is not covered by the Residential Tenancy Act in most provinces nor do they facilitate any sort of mediation for those who have entered a rent to own agreement.
 
 
For your best interest, you should have a contract drawn up by a lawyer or notary public and signed by the "landlord". The cost would be around $500, but it will lay out a clear understanding between you and your landlord as to how the process will be conducted.
 
 
What Questions Should You Ask if Entering into a “Rent To Own” Agreement
 
 
What is the term of the agreement? Customary “rent to own” agreements say that the tenant makes all repairs to the property for amounts under $500. You should then ask how repairs over $500 are going to be handled. Will they be reimbursed? Should circumstances arise and you are late with your rent, ensure that you have an agreement in place that your investment will not be lost.
 
 
With the imposed tightening of the mortgage approval process, home ownership has indeed become less attainable for some. Rent to own is one option that is relatively new to Canada. If you are considering this option, do your homework.
 
 
Sincerely, Peter The idea of rent to own has been getting a lot of media attention lately as buyers in all geographic areas and economic positions look for ways to have their money work more effectively for them.
 
 
The “rent to own” strategy has been very active in the United States for years, and with the newly increased media attention it is starting to become a more viable option for home ownership in Canada as well.
 
 
 
 
Who Would “Rent to Own”?
 
 
Rent to own is mostly used by those who would not normally qualify for a mortgage through a regular bank application. This could be due to not having an adequate down payment, or hiccups on their credit history, or they may be behind in Revenue Canada payments. Some who are self-employed or have occupations with unverifiable incomes may also consider the rent to own option.
 
 
 
 
How Does it Work?
 
 
This option, also commonly referred to as lease to own or option to purchase, works by having the tenant pay a certain amount for a set period of time. After that time, the tenant has the option to purchase the property for a lump sum, minus any previous rent payments applied to the purchase price.
 
 
There is usually a predetermined, initial deposit from the prospective tenant. Here is an example of how rent to own could work.
 
 
Purchase Price $350,000.00
 
 
Deposit $5500
 
 
Monthly Cost $2000 (Rent = $1500 and credit toward home purchase = $500)
 
 
After 24 months the full required 5% down payment is saved:
 
 
$5500 + (24 X $500) = $17,500
 
 
You would then need a mortgage of $332,500 to complete the purchase of the home.
 
 
 
 
Make Sure You Have a Plan
 
 
For whatever reason you are looking at “rent to own”, ensure that you have done your homework and that you have an action plan to ensure your investment is safe. If you have credit issues, ensure you work with me to get a plan in place to rebuild your credit. If you have self employed income, seek ways to have your income verified. I can assist with this as well.
 
 
 
 
Read the Fine Print
 
 
So here are some things that may not be readily available to the general consumer:
 
 
There is no standard contract for “rent to own” in North America
 
 
Rent to own is not covered by the Residential Tenancy Act in most provinces nor do they facilitate any sort of mediation for those who have entered a rent to own agreement.
 
 
For your best interest, you should have a contract drawn up by a lawyer or notary public and signed by the "landlord". The cost would be around $500, but it will lay out a clear understanding between you and your landlord as to how the process will be conducted.
 
 
What Questions Should You Ask if Entering into a “Rent To Own” Agreement
 
 
What is the term of the agreement? Customary “rent to own” agreements say that the tenant makes all repairs to the property for amounts under $500. You should then ask how repairs over $500 are going to be handled. Will they be reimbursed? Should circumstances arise and you are late with your rent, ensure that you have an agreement in place that your investment will not be lost.
 
 
With the imposed tightening of the mortgage approval process, home ownership has indeed become less attainable for some. Rent to own is one option that is relatively new to Canada. If you are considering this option, do your homework.
 
 
Regards, Peter Milne
 
 
www.petermilne.ca
 
 

Bi-weekly and weekly payments

Most mortgages have the option to allow payments to be made on a weekly or bi-weekly basis. This option may be desirable for two reasons. The first is it can save you money as you can expect to pay off your mortgage about 4 years sooner. This can save you dramatically over the life of your mortgage. The other reason why these options are so popular is that if your employer pays you on a weekly or bi-weekly basis, you can simplify your budgeting by making the payment line up with the way you paid.
 

Making Extra payments

Paying extra amounts on your mortgage can make a big interest saving over time. When we select a mortgage company, privilege payments options are something that we look for. A 20% privilege payment will allow you to pay off up to $20,000 per year on a $100 000 mortgage. It is important that the privilege payment also be flexible to allow you to pay smaller payments on the mortgage and as often as you wish. An extra $1000 periodically paid on a mortgage can help you become mortgage free faster.
 

Reducing the CMHC fees on your purchase

When you require a mortgage for more than 80% of the purchase price of a property, that mortgage must be insured by Canada Mortgage and Housing (CMHC) or GE Mortgage insurance. The premium charged by these company`s decreases as the down payment increases. When you finance your property at 95%, a premium of 3.75% is added to the mortgage. By increasing the down payment to 10% of the purchase price the premium can be reduced to 2.5%. If you can put down 20%, you can avoid any additional insurance fee. Depending on your situation there are ways that you can structure this financing to avoid the CMHC or GE insurance premium.
 

Advantages of Bigger Down Payments

As mentioned above, when you put a 20% down payment on your purchase you can avoid the CMHC premium. More importantly the larger the down payment, the lower the amount of interest you will pay over the life of your mortgage. It is important to note that it may not be wise to stretch yourself to increase your down payment and end up borrowing on credit cards or a line of credit at a higher rate.
 

Short Term Rates vs. Long Term Rates

The options for mortgages available can be very confusing for most mortgage shoppers. Terms for mortgages vary between variable and fixed rate, 6-month terms to 10 year terms. Taking a variable or floating rate mortgage can have savings. Typically the shorter the term or guarantee of the rate, the lower the rate will be. This does not always happen, depending on the market place and the economy, but history has shown that short-term rates tend to be lower than long-term rates. The up side of variable rate is the strong potential for interest rate savings. The down side is the fact that you are accepting the interest rate risk without a guarantee. If you are considering a variable rate mortgage you need to look at your own risk tolerance, and your cash flow available to deal with potential increased payment. Considering projections of rates and where we see interest rates heading can also be important in this decision. Make sure you talk to an expert when you are making this decision.
 
adminlistingsprivacy policycontactsite map
RE/MAX Real Estate Centre Inc., BROKERAGE, independently owned & operated
Copyright © 2002-2017. All rights reserved.
Realtor Web Site Design by Lone Wolf Technologies.
Lone Wolf Technologies