pros and cons for remortgaging/line of credit on home?

[mopetecan]

Hey guys,

I work a job that pays sporadically in large sums and i currently am very tight for funds. With christmas upon us and a trip with the girlfriend coming up, is it a bad idea to take out a line of credit? how about remortgaging? i believe the line of credit route is the best but what are your thoughts and experience with borrowing?

[01RedDX]

.

[Super_Geo]

Yeah go with the HELOC... what line of work are you in? Sales on big ticket equipment?

[mopetecan]

thanks guys. I am actually a 'amateur' athlete. Money comes by way of grants and prize money.

[anyone]

Originally posted by 01RedDX
Equity line of credit is very good for someone with a sporadic income. You pay only the interest on those lean months, and throw more money at it when you have it. Good way to consolidate debt into a low monthly payment.

This is a good idea IMO.

Another thing you might want to make sure of is if you re-mortgage your house you might have to wait a certain time period (5 years?) before you can make another lump sum payment.

I'd stick with what 01RedDX suggested. Check out the interest rates though as those types of lines of credit can be brutal for what they charge for interest. Might be more econmical to just get a more typical line of credit.

[lint]

Interest only HELOCs can be had at prime. If you have > 25% equity in your home, it should be easy to get.

[$lick_rYz]

^^HELOCs are usually prime (6.25%) and prime is expected to come down within the next few months...So ya I think it would be a good idea to go with the Line Of Credit as well

[broken_legs]

Heres how I see things:

AS a home owner you can get up to 95% Refinancing with a new mortgage. You can go for a longer amortization and end up with a bigger mortgage plus the extra CMHC fees to access all that equity.

Now even if you never use any of that money that you got out of teh refinancing you are stuck paying interest on it in that mortgage.

If you get a Heloc you can refinance up to 90% as a homeowner and only pay interest on the money you are utilizing on that LOC. So this way if you're not using that money you wont be paying interest on it.

In my experience the bank will try and talk you into a ported mortgage or a top up to lock you into a new mortgage so they get all their interest payments.


Also you may wanbt to consider that if that LOC is going to be maxed out if looks kind of bad on your credit rating because you are maxing out a credit line. I believe this will reflect poorly on your beacon score and lenders will be less likely to lend you money later. But if you just had a mortgage for the same amount you wouldnt have maxed out your lines of credit.

Thats been my experience recently.

Hope that helps

[blownz]

^ 6% as of last week. :)

And just a warning on the HELOC based on what I see from a lot of people: Don't get in a habit of only making the interest payment and never making principal payments.

I know it sounds simple enough, but I see a lot of people that go a few months just making the interest payments, then get some money and use it for something else thinking they will put it on the mortgage next time and next thing you know a year has gone by with no principal payment. It is really the only con there is. But if you have good self control it shouldn't be a problem. :thumbsup:

[mopetecan]

thanks for the help everyone.

a friend of mine was trying to tell me to pay my mortgage via the line of credit and just pay the interest for a few months if you get thin on cash. thoughts?

[mopetecan]

also do any of you know any really good financial planners?

[Subwoofah]

Originally posted by broken_legs
Heres how I see things:

AS a home owner you can get up to 95% Refinancing with a new mortgage. You can go for a longer amortization and end up with a bigger mortgage plus the extra CMHC fees to access all that equity.

Now even if you never use any of that money that you got out of teh refinancing you are stuck paying interest on it in that mortgage.

If you get a Heloc you can refinance up to 90% as a homeowner and only pay interest on the money you are utilizing on that LOC. So this way if you're not using that money you wont be paying interest on it.

In my experience the bank will try and talk you into a ported mortgage or a top up to lock you into a new mortgage so they get all their interest payments.


Also you may wanbt to consider that if that LOC is going to be maxed out if looks kind of bad on your credit rating because you are maxing out a credit line. I believe this will reflect poorly on your beacon score and lenders will be less likely to lend you money later. But if you just had a mortgage for the same amount you wouldnt have maxed out your lines of credit.

Thats been my experience recently.

Hope that helps

If your loan is going towards an investment, you might be eligible for tax deductions on your interest payments.

What's the best place to get a HELOC from?
BMO Readiline, Manulife One, or CTFS One?

[broken_legs]

Originally posted by Subwoofah


If your loan is going towards an investment, you might be eligible for tax deductions on your interest payments.

What's the best place to get a HELOC from?
BMO Readiline, Manulife One, or CTFS One?

All of my loan interest is tax deductable this year :D


All my stuff is through TD Bank D. Dub got me a mortgage with them for a pretty decent rate at the time

[Subwoofah]

Originally posted by blownz
^ 6% as of last week. :)

And just a warning on the HELOC based on what I see from a lot of people: Don't get in a habit of only making the interest payment and never making principal payments.

I know it sounds simple enough, but I see a lot of people that go a few months just making the interest payments, then get some money and use it for something else thinking they will put it on the mortgage next time and next thing you know a year has gone by with no principal payment. It is really the only con there is. But if you have good self control it shouldn't be a problem. :thumbsup:

if you make interest only payments (and the LOC is going towards an investment) claim your interest and use the tax return to pay down the principal.

[blownz]

Originally posted by Subwoofah


if you make interest only payments (and the LOC is going towards an investment) claim your interest and use the tax return to pay down the principal.

Except that wasn't what we were talking about... he was thinking about using a line of credit instead of a mortgage. So that isn't an issue.

[Heff]

My wife and I went with an interest only HELOC and then set our payroll deposits to go directly into the HELOC.

This means that we're, on average, paying about 200%- 250% compared to what we were on a traditional mortgage, and every dollar that we don't spend reduces our pay-back period and total interest accrual.

This system works great if you're financially sound and responsible with the credit.

Essentially, it means you have a big bank account with a negative balance that (ideally) continues to approach zero, with a total negative balance that you can use at any time.

Its pretty good for reno's, new home expenses like garages and fences and lawns and such...but you do have to be aware of balances at all times (if smart) and aim for closure of the LOC at some point in the future.

We went from a ~21 Year accelerated traditional mortgage to pay-off in ~7-8 years depending on our flex-spending. We include in these numbers a budget of $3500/yr for vacationing, and some free-spending money for emergency situations that accumulates if not used.

[blownz]

^ good job! I agree that it is very smart as long as you are disciplined which it sounds like you are. :thumbsup:

[Heff]

Originally posted by Heff
My wife and I went with an interest only HELOC and then set our payroll deposits to go directly into the HELOC.

This means that we're, on average, paying about 200%- 250% compared to what we were on a traditional mortgage, and every dollar that we don't spend reduces our pay-back period and total interest accrual.

This system works great if you're financially sound and responsible with the credit.

Essentially, it means you have a big bank account with a negative balance that (ideally) continues to approach zero, with a total negative balance that you can use at any time.

Its pretty good for reno's, new home expenses like garages and fences and lawns and such...but you do have to be aware of balances at all times (if smart) and aim for closure of the LOC at some point in the future.

We went from a ~21 Year accelerated traditional mortgage to pay-off in ~7-8 years depending on our flex-spending. We include in these numbers a budget of $3500/yr for vacationing, and some free-spending money for emergency situations that accumulates if not used.

On another note, we do some other very-smart credit practices on a monthly basis.

We maintain 3 credit cards.

2 Low Balance cards ($2000 - $3000 k limits) for daily spending - gas, groceries, personal spending etc, and zero-balance them every month.

1 High-Balance "gold" credit card for big purchases - home repairs, emergency family travel, vacation travel, out-of-pocket medical for our dog, any other large expense...that we pay off monthly as well.

This means we have 3 different, active and up to date credit lines along with our HELOC which is always paid on time.

After some easy budgeting, this system seems to work very well for us. Our "mortgage" is paid off sooner, we always have funds we need for daily spending, we always have a budget for a nice vacation, and we are always ahead of the 8-ball. All within realistic salary expectations for most skilled-trades or white-collar workers with 5+ years career experience.

[Subwoofah]

Originally posted by Heff
My wife and I went with an interest only HELOC and then set our payroll deposits to go directly into the HELOC.

This means that we're, on average, paying about 200%- 250% compared to what we were on a traditional mortgage, and every dollar that we don't spend reduces our pay-back period and total interest accrual.

This system works great if you're financially sound and responsible with the credit.

Essentially, it means you have a big bank account with a negative balance that (ideally) continues to approach zero, with a total negative balance that you can use at any time.

Its pretty good for reno's, new home expenses like garages and fences and lawns and such...but you do have to be aware of balances at all times (if smart) and aim for closure of the LOC at some point in the future.

We went from a ~21 Year accelerated traditional mortgage to pay-off in ~7-8 years depending on our flex-spending. We include in these numbers a budget of $3500/yr for vacationing, and some free-spending money for emergency situations that accumulates if not used.

Thats a very nice conservative system. You must be very wise about money management though.

Just wondering... are you leaving your HELOC in your bank? Why not put that money on a tax deductable investment (maybe in Canadian banks or something very secure, just something higher than inflation)? Wouldn't that make your payments shorter? It's a bit riskier but can it be done?

[Heff]

We could do that. If we could find shortish term investments that exceeded prime by even a little bit we could do that.

There comes a point where the effort required to shave a few months off of our payment schedule overshadows my perception of the benefit, though.

I'm a very "work to live" sort of person, and I don't want to HAVE to spend time every day managing investments, bonds or short term GIC's just to eek out a few fewer months of payment.

What I might do, as we get to areas where we have large chunks of un-spoken-for credit is buy a 1 year GIC if I can beat prime, then sink the GIC and its Interest back into the HELOC.

I could also flip flop zero-interest credit card offers if I wanted to to minimize the interest dollars that I pay, but the danger with the zero-interest-introductory offers is that if you make a single mistake (get distracted, have an interest accrual date while on vacation out of the country, etc...) you loose all the benefit you may have gained.

I'm pretty comfortable with the plan I have going now.
I may alter it if I find an interest venture that I feel is balanced for effort and return.

Everyone should work out a financial model that works for themselves. This one, on our part, requires very little hands-on management time on our part, and provides us with a good end result...so I find it ok - even if it is not the min-max best plan available.

[Subwoofah]

Very good response. I like it!

I plan on taking out a HELOC and buying an investment property... This pretty much guarantees that I'm getting better than prime. But there is the added difficulties of owning a rental home.

Did you have an accountant look at your finances? If so who do you recommend? Anyone?

[Heff]

I don't have a personal accountant.
I'm more of a 'research it myself' sorta fellow.

I probably should have one check over my retirement plan to ensure i'm not completely out to lunch, though.

[Deucers]

so a question I have is when applying for a HELOC, how do they find the value of what your property is worth?
-would they use an appraiser?
-or would they use the city tax assessment?

Thanks

[Subwoofah]

they use an appraiser

[Maddog55]

Originally posted by Subwoofah
they use an appraiser

And you have to pay for that assesment..usually around $350.00 It gets built in to documentation fees and such.

[TomcoPDR]

Originally posted by Maddog55


And you have to pay for that assesment..usually around $350.00 It gets built in to documentation fees and such.

Actually, depends if you know your banker or not... some of the big bank's mortgage brokers can "waiver" or cover the $280-$350 apprasial cost; afterall, you'll be lending money off of that bank.

[Khyron]

We have our morgage with TD but they wouldn't waive the appraiser so we got our heloc with president's choice - 50K or so (this was a bit more than a year ago) and they just went by the property value. No fees. So shop around.

You want to play games with money, we just dove into this:

http://www.tdcanadatrust.com/investmentlending/3for1nomargin.jsp

For OP I'd definately look into a heloc with a minimum payment structure that you can meet even in the leanest times. Then either pay the rest off as you can or invest it.