Slash Your Mortgage
When you consider the financial advantages, it's no wonder that so many homeowners take this route.
A common application is to use the rental income to pay off your mortgage. Let's say, for example, that you have $100,000 outstanding at 6% interest, and are paying it off at $1000 per month. At this rate, it will take you 11 years and 7 months to pay off the mortgage, and in the process, you will pay $38,983 in interest.
Now, suppose you have the same mortgage, but rent out a basement suite to a university student. Let's assume that you charge enough rent so that after expenses, you can put an extra $500 of that towards your mortgage. The result is that you will pay off your mortgage in just under 8 years - nearly 4 years sooner, and in the process, save $17,123 in interest.
Of course, you might have to renovate to create the basement suite, but it's worth it. In addition to the benefit above, homes that produce rental income are very attractive on the market because they allow the buyer to take on a larger mortgage. Mortgage companies recognize this as well, and will often reduce the amount of the required down payment on the mortgage as well.
There's also good news from the tax perspective. If you renovate to create rental income, you can deduct the expense from your taxes, and the interest on any financing that you do. This is one of the few ways in Canada that you can get a tax-free loan. However, you should always consult an accountant or tax advisor whenever your financial plans may have tax implications.
Financing your rental suite is a very suitable use of home equity financing. Your Capital Direct representative can advise you on the best course of action for your situation.