Financial question/help

[Willingham]

I own a condo in Vancouver with about $200,000 worth of equity. I have a pretty good job and good credit.

Problem is, I am running a line of credit that is quite high $15,000 and getting maxed. I could probably get more "credit", but I don't want to...

Has anyone had experience with re-financing their home? What I want to do is re-finance so I can pay off my credit line, and get a newer vehicle...

I know there is a package called Manulife One - where your mortgage becomes a line of credit....

Thoughts appreciated.....

 

[Sit_on_my_face]

Funny how you mentioned this now LOL... A buddy of mine at work just refinanced his morgage at his bank a few days ago and paid off his $35000 line of credit.

He made his monthly payments higher but manageable. Now he has no line of credit. Don't ask me how he did it, he just mentioned it to me.

He's years away from retirement so it was worth it. Why pay the interst in a line of credit when it's doing nothing for you.

If your able and can afford to do it, I would.

 

[Willingham]

The problem I see with this Willingham is that you're borrowing against your home..to pay off your line of credit, so you can acquire a car. You're borrowing against a sound investment (house) essentially to free up enough credit to buy a car (bad investment). It's good money after bad.

Could you pay off the Line of Credit first then buy the car? If you have a maxed out line of credit, that'll hit your credit score. One of the paths to great credit is the ability to pay DOWN your credit, not make monthly payments and never have the balance drop.

How about a part time job? If you made an extra $400 bucks a month you'd have your debt under control within a year. Could you cut back expenses and redirect the funds toward repayment?

I would also consider calling your bank and asking them to lock access to your line of credit. You'll be able to pay it off, but not access it. This is a good step in getting starting to get rid of debt.

There is a word that few people toss around and that word is liquidity. You can't buy a pizza with the equity in your house..and you shouldn't buy it with your line of credit if you get what I'm saying.

Thanks for the good advice - I work a lot already, getting another part-time job is not an option. I guess all I want is to free up some cash, but its not so easy, even when you have good equity. At 400 a month it would take me years to pay of the credit.

 

[Willingham]

Get a homeline plan, ie. RBC's Homeline Plan. You can convert your current credit line to Mortgage segment with lower than Prime interest rate (along with your existing mortgage). Your house would need to be registered as First mortgage as collateral with RBC though. When you're paying down your mortgage, the equal amount of line of credit will be increased and available at the same time.

The maximum amount of total mortgage and credit line together will be up to 80% of your condo appraisal value, depending on your total debt ratio, the ability to serve your debt (max 40%=total debt monthly payments/ total monthly gross income)

For example: Assume your condo is worth $300K appraisal value and you already have about $200K equity, so you have about $100K mortgage. Maximum amount of this plan will be total $240K=$100K(existing mortgage)+$15K(credit line but converted into mortgage segment)+$125K (available equity credit line to use with Prime interest rate)

By doing so, there's no more debt incurred and you'll pay down your existing line of credit with cheaper mortgage rate. I am more familiar with RBC's equity products, but most banks in Canada have similar products, such as TD's Powerplan.

Sweet - thank you Dave - I assume the Manulife One option is very similar.

 

[Jodie]

Has anyone had experience with re-financing their home? What I want to do is re-finance so I can pay off my credit line, and get a newer vehicle...

Be careful. This is largely how many Americans have screwed themselves over. They borrowed against their houses to finance extravagant lifestyles beyond the means of their incomes. Then, when housing prices started to drop, they found themselves owing more mortgage than the house was worth.

With $200K equity, you're nowhere near that situation, but be careful: it's a slippery slope. It looks like you're already talking about borrowing $50K (car + pay off line of credit). Easy come, easy go.

 

[Motioncar]

Again, Jodie is correct.
You can easily re-fi your condo and pay off the l-o-c, but you better have learned your lesson and live within your means, or you'll just do it again.

 

[Validator]

I think everyone here makes a good point. I think the idea of paying off the loc is a good one, but I question why the purchase of a new car..which depreciates in value. Also, examine why you have gotten yourself into $15000 in debt? Is this a one time thing or is it goin to happen again? Speak to an accountant - not someone who works at a bank. They are commissions based, so they"ll give you biased advice.

 

[Willingham]

Pooning made me the man I am today. Had to let it go.

 

[bcneil]

I have something very similar to the Manulife One and I love it.
I also find it great to invest with as well, and to use the interest as a tax writeoff

My buddy just got the Manulife One. They paid all the legal fees and whatnot to transfer the mortgage over. I think his previous mortgage was due anyways so no penalties.

Manulife also has somethink like a $12-$14 a month fee, which includes all your banking as well. He was able to get that waived. So make sure you get them to do both of these for you if you go this route.
His place was like $225000, and he had $140,000 equity.
So if they will waive all the fees for him, make sure you push for it too.

 

[Thais]

Manulife also has somethink like a $12-$14 a month fee, which includes all your banking as well. He was able to get that waived. So make sure you get them to do both of these for you if you go this route.
His place was like $225000, and he had $140,000 equity.
So if they will waive all the fees for him, make sure you push for it too.

Just to add to the above, Manulife One's interest rate is prime.
I had no idea you could get the fees waived...