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Using a Commercial Mortgage to Add Value to a Property

November 07, 2023

If you’re looking to add value to your building – and need capital to make that happen – you have a few financing options you can consider. Whether you’re making repairs, renovations or energy efficiency upgrades, you can increase the value of your property and the return on your investment by leveraging your commercial property mortgage.

Before you get started, there are a few ways you can get the most out of your commercial mortgage. Here are three considerations that can help you maximize your opportunity while reducing your costs:

1) You don’t have to wait for your current commercial mortgage to expire

Refinancing a mortgage is a common way for clients to access the equity in their property and use it for improvements. While many property owners will wait for their mortgage to expire and refinance at maturity, you don’t have to hold off on your plans and time such a move with your mortgage term.

Instead, consider leaving your existing mortgage in place and add a new mortgage (often known as a top-up mortgage). This mortgage doesn’t need to have the same term as your current mortgage and can let you start your upgrades sooner rather than later.

2) Think about any future repairs or upgrades

As you determine your financing needs for your current upgrade plans, be sure to think about the future. For instance, are there repairs or maintenance projects you may need to take care of over the next few years? Considering your full scope of needs and the capital you’ll require in the near future can reduce the number of times you need to apply for financing… and deal with the associated costs and paperwork.

This is a particularly smart strategy in a rising interest rate environment. By leveraging your current equity, you can limit the amount you may need to borrow in the future at potentially higher rates.

3) Consider upgrades that enable affordability, energy efficiency or accessibility

If your upgrades make your building more affordable or accessible for tenants, and/or achieve certain climate standards, you can access higher loan-to-value ratios, increased amortizations, lower debt coverage ratios, and reduced premiums by using MLI Select from CMHC.

MLI Select is a new multi-unit mortgage loan insurance product that offers insurance incentives based on your commitment to affordability, energy efficiency and accessibility. The more committed you are to social and environmental outcomes, the better the incentives. You can choose to focus on a single area like affordability or combine commitments to increase your points and incentives. Examples include:

  • Installing ramps, lifts and elevators
  • Adding accessible parking and signage
  • Upgrading heating/ cooling systems
  • Installing energy efficient appliances and lighting
  • Weatherizing doors and windows
  • Reserving a portion of your units to remain at a lower rent level

MCAP can help you access financing and discover the options that will increase value in your property, maximize the equity you can access and minimize the interest rates and fees that come with financing upgrades. Meet with an MCAP expert today to discuss the financing strategies that will work best for you and your property.

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