A rental suite can help you pay off your mortgage but it could also turn into a nightmare if you become heavily dependent on that rent money and you have a mortgage on a house that you really can’t afford.

The rental suite option became more and more popular with the recent increases in house prices while mortgage rates remained at historic lows, combined with a large demand for accommodation below the $ 1,000 mark, especially among students going to university or young people starting out in the labor market.

By  renting out a basement suite to a university student, you can charge enough rent so that after expenses, you can put some extra money towards your mortgage. The result is that you will pay off your mortgage in less years and in the process, save a large chunk in interest.

When you start number crunching to see if this makes financial sense, be aware that Canadian banks have toughened their standards for financing houses with a rental suite.

“Banks used to do a rent reduction, so that if you qualified to carry $1800 a month, and the tenant was carrying $500 and it was a legal unit, then they would take that amount off that you had qualified,” explained Diane Speer, of ReMax in Toronto.

“Or they would take some of the income and then discount, like if you’re getting $13,000 a year from a unit, they might add that into your income or take a percentage thereof. That’s constantly changing, too, the way they’re looking at it.”

“If it’s an illegal suite, you won’t get any break from the bank.”

And that brings up the issue of zoning: many rental suits in homes can be illegal, meaning the municipality hasn’t zoned a particular area for rental housing.

“But most neighbours will turn a blind eye because it’s been a way of living for so long a while and affordable housing is available in the neighbourhood. The only time I’ve really seen issues with them is somebody moved in who has three cars or somebody moved in who is an issue.”

Having decided that you really don’t mind sharing your house with a complete stranger, you will want to take extra care when holding auditions for your apartment and adopt more than a passing familiarity with provincial landlord-tenant legislation.

“A lot of people are so excited to get a tenant and get someone to pay that they’re not doing a credit check or not making sure on the application that the apartment is being rented to one person and not a family of six,” said Speer.

Speer observed that some of her clients will get in touch with the student housing office at local community colleges.

She has also done the landlord routine and said you just have to be smart about it.

“We were just always really cognizant of keeping the rent at an amount where we would get lots of applicants so that we could choose someone who we thought would be good, one person, a professional maybe who traveled, who wasn’t around,” said Speer,

“I think that if you don’t have standards there or do any kind of qualification or screening, it could be a nightmare and I’ve seen a lot of people go through it.”

Read more at:
http://ca.news.finance.yahoo.com

Contact us for more updated information on rental suites.

More than any other province, first time home buyers in Alberta are expecting to pay less than the asking price for their home (71% vs. 65% nationally). One-quarter (26%) expect to pay asking price and only 3% expect to pay more than asking price.

These are the findings of  the first TD Canada Trust Home Buyers Report, which surveyed Canadians who have purchased their first home in the past 2 years or who intend to purchase a home in the next 2 years.

Albertans also report putting down as much as they can afford for a down payment (95% vs. 88% nationally). 65% say they saved or plan on saving for two years or less for their home purchase. Despite the majority putting down as much as they can afford, only 25% plan to have more than a 20% down payment. The remaining 75% will require their mortgage to be insured by organizations like the Canada Mortgage and Housing Corporation (CMHC). Two-thirds (65%) are worried about being able to afford their home if interest rates rise.

“It’s only natural to want your first home to be the home of your dreams, but it is important to be realistic about what you can afford as a down payment and what that will mean for both the type of home you buy and for your mortgage payments over time,” says Farhaneh Haque, Regional Sales Manager, Mobile Mortgage Specialists, TD Canada Trust. “I advise first time home owners to consider a larger down payment because a 10% or greater down payment will make a big difference. It may mean that you need to save longer before buying your first home, but it will pay off in the end. Speak with a representative at your bank about setting up an automatic savings plan to help you save.”

73% of those surveyed in Alberta have or plan to have a fixed-rate mortgage.

“Historically you are more likely to save interest costs with a variable rate or short-term mortgage option, so if they can handle some volatility then I recommend buyers choose a variable rate. If people are adverse to interest rate fluctuations then a fixed-rate is best,” says Haque.

Albertans are doing their homework:
Nearly all home buyers are making informed financial decisions before buying their home. Top activities before buying a home include getting pre-approved for a mortgage (94%), learning about mortgage options (93%), calculating closing costs (89%) and speaking to a mortgage lender before shopping for a home (89%). However, land transfer tax, closing costs and property taxes were the top costs that buyers felt unprepared for (53%, 51% and 48% respectively).

What type of home do Albertans want?
59% of Albertans prefer fully detached homes, followed by condominiums (17%) and semi-detached homes (14%). If two homes were at the same price point, 68% would prefer a newer home over an older home. Albertans are split about the preferred location for their home; for the same price, 55% would prefer a smaller home closer to work and 45% would prefer a larger home that requires a longer commute to work.

Home shopping process:
People in Alberta do their due diligence when searching for a home, spending almost 9 months looking for a home and viewing on average 13 homes. They spend a lot of time shopping in Alberta because they plan to live in their first home for longer than people in other provinces. In fact, only 5% of people plan to spend less than 3 years in their first home (compared to 11% nationally). 39% plan to spend more than 10 years in their home or to never sell.

About the TD Canada Trust Home Buyers Report:
Results for the TD Canada Trust Home Buyers Report were collected through a custom online survey conducted by Environics Research Group. A total of 1,000 completed surveys were collected between June 8-21, 2010, including 100 from Alberta. All participants either purchased their first home within the past 24 months, or intend to purchase their first home within the next 24 months.

About TD Bank Financial Group
The Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank Financial Group. TD Bank Financial Group is the sixth largest bank in North America by branches and serves more than 18 million customers in four key businesses operating in a number of locations in key financial centres around the globe: Canadian Personal and Commercial Banking, including TD Canada Trust and TD Insurance; Wealth Management, including TD Waterhouse and an investment in TD Ameritrade; U.S. Personal and Commercial Banking, including TD Bank, America’s Most Convenient Bank; and Wholesale Banking, including TD Securities. TD Bank Financial Group also ranks among the world’s leading online financial services firms, with more than 6 million online customers. TD Bank Financial Group had CDN$574 billion in assets on April 30, 2010. The Toronto-Dominion Bank trades under the symbol “TD” on the Toronto and New York Stock Exchanges.

Diana Olick, CNBC Real Estate Reporter, has recently published a post on why the Canadian housing market hasn’t suffered from the same maladies that plagued the US.

Among other reasons, Diana cites fundamental differences in Canadian banking, borrowing and home buying.

Diana uses three main arguments to support her theory:

1. At the height of the Canadian housing boom barely 5 percent of loans were considered “subprime,” while a full third of U.S. loans were either subprime or Alt-A. As CIBC’s Benjamin Tal explained, “Nobody stopped a Canadian bank from lending in the subprime market, they chose not to,. It was not the government, it was not monetary policy; there were no regulations whatsoever regarding how much you can lend in the subprime market. Canadian bankers decided not to do so, because it was too risky.”
2. Just six big Canadian banks own the bulk of the mortgage market, and they don’t securitize and sell off loans at nearly the rate U.S. lenders do. They hold nearly three quarters of their loans on the books, and 80 percent of Canadian loans carry mortgage insurance.
3. An “element of conservatism that runs right through the Canadian housing industry, from the banking, financing element, to the homebuilders and even in the resale of homes,” as Phil Soper, CEO of Brookfield Real Estate Services – Royal LePage, explained. “The innovation has safety valves.”

What’s your opinion?
Should the United States use Canada as an economic role model, or is it all just an illusory dream?
Please leave your comment below.