Consolidating Debt into a Mortgage
Posted by Gail | Filed under Credit Wise, Home Buying, This & That
Everyone wants to know whether or not to consolidate their consumer debt onto their mortgage. Well, it depends on whether you’re doing it to reduce your interest costs, or to buy room on your credit card so you can keep shopping!
R wrote:
When purchasing our home four years ago, we decided to get a bridging loan (I still don’t understand how it works). But the person at the bank also suggested an Equity Line of Credit, amalgamating our car loans while saving on monthly interest etc, because we were richer than we thought.
To our dismay and four years later we are still paying off this equity loan. We are now at 26,000 (down from 56,000) – We increased our payment to 1,500 a month, but I am so fed up of paying this money, because its 1,500 we could use on other things, like vacations or retirement. I am wondering, when our mortgage comes up for renewal (May 2010) we would then owe around 12,000 on the Equity Loan. Do I continue to keep paying it off monthly or should I add this money to our mortgage just to get rid of it. Right now we have a variable mortgage at 2.25 %interest. I am now 50 years of age, and really want to get our mortgage paid off. So I am not sure if adding the left over from the Equity Loan to our mortgage is the right thing to do. We have another 10 years on the mortgage.
R, sorry you got suckered. No one is richer than they think, but it sure is a great way to convince people to borrow more money, isn’t it? If your mortgage rate is lower than the equity loan rate, consolidate to lower your costs. But don’t reduce your payment amount. Slap as much on the mortgage as you were paying for debt and mortgage payments together and you’ll not only save money, you won’t add to the length of your mortgage.
K wrote:
I have $170,000 equity in my house, but have $45,000 in credit card debt. Question: Should I apply for a loan to clear the cc debt all at once (using home equity as collateral) or just keep paying it off as agressivly as possible (currently paying around $1000 a month)? Interest rate on my 5 credit cards varies from 28% to 5%. My net monthly income is $4950. My mortgage payment is $900/month (variable) I am a single parent of one child.
K, with such high interest rates, it makes sense to consolidate on your mortgage to save on interest providing you put away all forms of credit, learn to live on your current income, and continue to make extra payments against your mortgage to offset the consumer debt you stuck on there. Stick with a payment of $1900 a month and you should be fine over the long haul.
Maureen wrote: (I’ve summarized)
I wonder what would happen if for a couple of years the interest rate on all loans, mortgages, lines of credit and credit card debt was reduced for everyone. For example – 5% on $1000 of debt is $50. 19% on $1000 of debt is $190. Believe me, if that $140 dollars (multiplied by all the debt in North America) was still in our hands we (the millions of tax payers) could really stimulate the economy, create jobs and businesses and/or stave off foreclosure and bankruptcy. And the lenders would still be getting something – which is a lot better than the nothing so many can no longer pay. Would this not give many the breathing space that is needed to stave off more foreclosures and bankruptcies? Would this not act as a grass roots stimulus package instead of robbing from the tax base and our children’s future? I do know what an enormous difference it made to our lives when we were able to renegotiate all of our credit card debt down to 5% interest a few years ago. We are debt free and have some savings for the first time ever. Multiply what we were able to do by all the people who are in the same situation that we were in and I think we would see some real change. I honestly think that we the people could do a much better job of rebuilding our lives and the economy if just given a break.
Maureen, you’re very right when you say that a significant reduction in interest rates would help people not only get out of debt but create enough cash flow to help stimulate the economy. I received an email the other day from someone who tried to consolidate all their debt with one of our biggest banks only to be offered an interest rate of 16% — this when prime is at 0.5%. It is frustrating to watch. I’ve actually blogged about the fact that I think there should be a sliding scale implemented… take a three year consolidation loan and watch your interest rate come down semi-annually if you keep your monthly payment plan. But it would take some imagination and a willingness not to walk lock-step with everyone else for this to happen. In the mean time, I hope people are learning the lesson that borrowing at any cost is NOT a good idea. Maybe there are enough lessons in these tough times to make people wake up. And maybe those companies that do right by their customers will be rewarded with loyal customers over the long term.
S wrote:
I know that everyone says going with a variable-rate mortgage is cheaper in the long run than going with a fixed-rate mortgage. But to be honest I’m scared to death that the rates are going up. I mean if they’re this low now isn’t up the only place left? So what should I do?
S, I think you answered your own question. You know what you want to do, but you just don’t want to look stupid doing it. Doing what’s right for you is never stupid. It may be fine for some to go with a variable rate if they have a high risk tolerance and are prepared to keep a keen eye on the mortgage marketplace. The reality is that the spread between fixed-rate and variable rate mortgages is pretty thin right now, with fixed-rates coming in at about 4% and variables hanging at about 3.3%. (FYI, lenders charge a premium on fixed mortgages because they have to accept the risk that rates might go up. When you choose a variable rate, there’s no risk to the lender so you get a better rate.) So the question is, are you willing to eat .7% higher cost to know for certain what your mortgage rate will be for the next five years?
April 8, 2009 at 7:39 am
Currently the prime rate is at 2.5 and is projected to continue to go down…a consolidation loan coming in at a fixed rate of 16% is quite high but there are factors in place to determine that rate…secured versus unsecured, past credit history and client history with the bank…with the bank I work at, the rate is based on you as our client…this change was implemented so that any guy coming in off the street is not getting the same rate as our long term client…this is a benefit of having a relationship with your bank…also consolidation loans are more expensive (in terms of interest rate) because of the risk already there just by the fact they are consolidating…the banks are getting less and less inclined to consolidate other financial institution debt without some form of security because past history shows (and most of you KNOW this is true) that a client will get a consol loan, chop up and cancel all those nasty credit cards and then 6 months from now decide they ‘need” something else and bam, the new cards are opened and the cycle begins again…I still have clients who are very surprised when they come in for a consol loan and I tell them the conditions involve cancelling all that other credit they want to consolidate (usually we leave open one credit card, but with a low limit) they still think they can consolidate and leave it all open…of course nothing stops them from going out and opening stuff up again at other places….as a bank we know that and history shows that is more likely going to happen then not…so 16% on an unsecured consolidation loan??…not really that bad…and besides it’s still cheaper than the 19-29% they were probably paying on all that other junk debt….another thing to remember is that the banks are NOT the ones giving you 5 credit cards and offering buy now pay later…we’re just the ones clients come too when they’ve accepted all this offers and then discover that they can’t pay it all…….get your financing from a bank..one bank…so we can track it and help and advise you…if you have a mortgage, a car loan and a credit card with one bank, you probably have enough and need to learn to live within what your budget allows…we are advisors and we have alot of knowledge and tools to assist with…take advantage of us we are there to help:)…Cheers y’all!
April 8, 2009 at 8:23 am
Five years ago when our mortgage was coming up for renewal at RBC (this was our first renewal date), we never received a call from RBC regarding our mortgage at all – just a letter in the mail saying this is what your mortgage will renew at – at that time 6.5%. Having been with RBC for MANY years, I figured we would be considered good clients, and we went in to see what they could offer us. They reduced the rate to 6%, and were not interested in talking about consolidation to us at all. So, we shopped around and went to a mortgage broker. The best decision we made!!! We got a 5 year mortgage, and consolidated my husbands 2 student loans and paid off our van loan. The mortgage rate for a 5 year term from them was 4.95%. What a difference. Now, we are going back to the same mortgage broker to renew again, and we will be at 3.99% for a 5 year fixed term. We will continue our payments the same as they had been at 4.95%, and will put extra down on our mortgage. It will be paid off within 10 years now. I do not like dealing with the banks directly anymore. I’ll continue to go through the mortgage broker.
April 8, 2009 at 9:57 am
It’s incredible to see the variances between going with a mortgage broker, vs. the banks. I just attended a first home buyers seminar yesterday and listened to a great blurb from a Mortgage Specialist from TD Bank. My fiance and I are so new to all of this, that we’re so confused! We don’t know if we should go with the bank (logical), or with a mortgage broker (Brenda, your example above just gave more brownie points towards the MB). I guess we’ll have to keep doing our legwork to find out what best suits us.
We’re planning a wedding, paying off debts, and padding our downpayment (all of this at the same time!); we’re looking to buy in late 2009, or early, to mid 2010.
Thanks so much to all of you; you guys are great- mostly, thanks to Gail! We watch your show all the time; my fiance loves your approach and sense of humour! It’s good to know that we don’t have to keep up with the Joneses, or participate in the race.
April 8, 2009 at 10:10 am
Tiffany – my advice would be to elope.
April 8, 2009 at 10:11 am
Tiffany, I just renewed my mortgage (early, due to the low int rate) and I went with a super broker!!! She was sooo awesome, she worked very hard for me to get the best rates and payments and we consolidated a few things into it, and our payments are lower than before, and we owe more!!! Best move I’ve made this year (and we are doing bi-weekly accelerated which cuts off 5-7 yrs off the bat!) …ask questions is the best advice. And put money away because there are lots of fees involved in your first purchase that have to be paid up front.
April 8, 2009 at 10:29 am
Tiffany, I just bought my first home last year. I went through a mortage broker who was absolutely FABULOUS!! She got me an absolutely incredible rate with ING. I went with a 5yr variable open. I can lock in at any time. At the time the rate was about half a point lower than a 5yr closed so I figured why not? With the economic downturn of late, I have benefitted big time! My rate is now 1.75%!!
Definitely go with a mortgage broker. They shop around for the best rates, and can often do much better for you than if you walk into a bank yourself…no matter how long term a client you are. You wouldn’t believe the rate I got from TD – and I’d been a client there since 1986!
April 8, 2009 at 11:12 am
I alway find this hesitation with fixed vs. variable rates interesting. 9 out of 10 cases, people save money over the whole life of their mortgage choosing variable over fixed. There have been many academic studies on this, the lastest being by Milevsky at the Schulich School of Business at York. The difference is not a small amount.
The main argument from people seems to be that the are unable to handle rising or changing mortgage payments. If you have bought more house than you can actually afford then this is likely true but who in the right mind would do that.
You can easily fix your payment on your variable rate mortgage. You simply choose a monthly payment that is higher than the current rate stipulates (higher than the amount required by the bank). This way you not only pay more of the principal off each month, but your monthly payment does not rise until you hit your trigger point.
For example, I have a variable rate mortgage. When I initially signed the mortgage, that rate I got was Bank Prime – 1% or 5.4% at the time (and well higher for a fixed – at the time around 7%). I fixed my monthly payment to accord with an interest rate of 9% so my monthly payments will not change until the interest rate on my mortgage exceeds 9% – a rate that was chosen because it was very improbable that rates would rise to that amount over the five year term of my mortgage. My rate has now dropped to 1.5% but my monthly payments are the same so I am making greater progess on my mortgage (paying more principal) and will pay far less interest than if I had signed a fixed and have all the security of a fixed payment. By the time I renew, rates will be higher sure (but unlikely they will be above the 7% that was the fixed rate in effect when I signed my last term) but I will still sign a variable rate mortage, fix my monthly payment to a rate unlikely to occur in the next five years, and laugh all the way to the bank.
Even at a fixed rate of 4%, my variable rate mortgage will dominate fixed rate mortages at this rate not only over the next 3 years I have left on my term but also over the next 5 because I will be paying any higher rate for less time that anyone with a fixed. The bottom line, variable rate mortgage do indeed offer all the security of a fixed mortage and none of the costs.
And I hope no one is actually paying the advertised mortgage rates. These are the maximums. There is still a lot of room to negotiate out there, assuming you have a solid credit rating, own at least 20% of your home (who in their right mind does not save at least 20% before buying a home), and have assets.
April 8, 2009 at 11:19 am
Extraordinarity: ,
April 8, 2009 at 11:21 am
WOW! ok then- I guess we are steering towards an MB…I guess MB’s work more personally with you, than a bank (mortgage specialist would). Thank you ladies for all your help!
Ioana- trust me, that thought has already pased our minds! LOL
Michelle- maybe you could give me the contact name of your MB….that pretty much sounds like something that could benefit us. We are in about $28K in mixed debt (all for good cause, the classic “helping ppl” out money- now we’re in the hole). We would like to put everything in one package so that we’re just doing one payment at one ‘price’. I am attacking my $10K debt, and hope to be debt free in 10 months (before the wedding, yay!); my fiance is working hard chipping off the credit debt, but it would be amazing if he was to pay it off before the wedding. optimism tells us that he’ll pay down 50% by the wedding, which is still better than nothing at all. Do you think your MB could help us out with this type of scenario? Also, how much “extra” do you suggest we have by the time we are ready to buy?
Karen- Thanks for your help re: which type of rate to go with. Again, we were confused as to whether or not we should go with fixed or variable. i am a planner and a saver; I hate taking risks! My fiance n the other hand is very happy-go-lucky! LOL- I think he would like to go with the variable….at least we have piece of mind that we can lock in at anytime.
Another burning question; probably not suitable under this blog- but…..should we rent for 5-6 months and pad the downpayment to aim for 20%? Right now, we have 10%.
April 8, 2009 at 11:24 am
LMT- I think you should be softer with your words re: ppl not saving 20% before buying a home. There are lots of ppl out there who cannot afford to save 20%. I for one, am working agressivelypaying down debts and am trying to pad the downpayment; same for the fiance. If we keep at it, we’ll make it!
April 8, 2009 at 11:34 am
Tiffany, you should read Gail’s blogs about the downpayment stuff, I think she suggests 20% saved up. There are so many things that came up that we were not prepared for when buying, and in a way are probably still paying for!! Now is a great time to buy with the interest rates so low, so I guess you have to weigh the pros and cons, and do some research as to the prices of homes in your area. As for our broker, I’m not sure where you live, but she’s in Cape Breton, and I don’t know how that would work if you’re not from here. If you’re dealing with a broker maybe you could ask for references – I know I would give anyone Helen’s name around here. She was fast, efficient, and accurate, and soooo friendly!! And as for the wedding – I didn’t elope and am glad I didn’t, but I did keep it very simple so there was no huge debt from it. Remember the purpose of getting married…
From what I can remember the lower the debt ratio is the better the interest rate you’ll get…(so the less debt you have going to get the mortgage the better – all around) Just make sure you are making money on your money while you’re saving it!! …TFSA is one good way…reading some of Gail’s blogs will help you a lot. and GOOD LUCK!!!
April 8, 2009 at 11:44 am
Thank you so much Michelle! I’ve already checked out some of her blogs and even printed some of them out. We have a plan and are abiding by it (assuming that we’ll both still have jobs- it’s so uncertain nowadays!).
Yes, you are correct; the debt ratio def needs to be lower. We will keep at it and aim for the 20%.
Thanks again!
April 8, 2009 at 11:48 am
Tiffany, anything less than 20% is a subprime mortage. That is why everyone with less than 20% down has to pay for CMHC insurance. The insurance costs are high and apply for the entire life of your mortgage (you still pay those costs even once you have 20% equity). This is similar to Freddie Mae and Fannie Mac down in the US. Banks do not provide such mortgages without taxpayers guarantees (we will all carry the cost of default). As Canada is just starting to see the start of foreclosures on these mortgages, we are only just feeling the effects of this government interference.
The costs of such mortgages are felt by everyone too not just the individual (in terms of sunk costs every month for the insurance premium which carries on for the life of the mortgage) but everyone. Such schemes artifically increase demand for the good (homes defined broadly) which increases the price of homes which increases the mortgage costs which increases the the amount needed to save and so the cycle goes.
If you can’t afford 20%, you can’t affor a regular bank mortgage. The only reason you are getting a mortgage is because we the taxpayers will cover the costs of the mortage if it goes bad. That is what is called bad public policy. Home ownership for everyone is the root cause of the current economic fiasco (that and people demanding 15% returns but not wanting to take risk to get the return (greed)).
BTW, Gail herself has said that you need to have a 20% downpayment for buy a house.
April 8, 2009 at 1:03 pm
I have to disagree with LMT.
CMHC fees are calculated into the mortgage up front so you should never need to pay them again unless you are increasing the amount of your mortgage. If you are increasing the mortgage and you are keeping the mortgage under 80% you should not pay CMHC fees. The only exception to this is if you are Business for self and you are using a “stated income” and you are moving your mortgage from your current lender and increasing the amount you borrowed origionaly from them.
Ideally, you should have 20% downpayment – however, you need to do what is best for you and your situation – it is also dependant on the cost of the house. But being smart about the buying a house and getting all the information that you can before doing it, is what is most important.
I didn’t have 20% and I resent that I am said to not be able to avoid my regular bank mortgage – I have never defaulted on a payment and no intention on doing so! Is it a struggle? Maybe but I just have to juggle my priorities and btw – I have no consumer debt – my only debt is my mortgage.
April 8, 2009 at 1:05 pm
LMT – a less than 20% mortgage is not a subprime mortgage. Subprime generally refers to a mortgage at an interest rate that is substantially higher than what the average individual can obtain due to questionable income or credit history, not the fact that you need to purchase CHMC insurance. (For instance, the threshold to avoid CHMC insurance used to be 25%). Otherwise one could in theory come up with 15% and borrow 5% and clear the insurance costs (and one should consider this, actually if you’re in this position and am responsible)
It’s also a stretch to say the tax payers will bear the burden if the mortgage goes bad; a lot has to happen for that to happen – including the failure of the home to sell at fair market value as required by law in Canada (no auctions on the courtroom steps). In my neck of the woods, houses are moving at a decent clip if they aren’t priced insanely.
As for the 20% down as a rule, I’d challenge that as an arbitrary number and prefer the cost of the monthy housing as a % of gross income as a better number. For instance Gail says that you should allocate no more than ~30% of your gross income to housing and 15% to debt repayment but you can mix it — for instance, if you have no debt to repay you can comfortable pay 40% and still be coming out ahead (the danger being you could be in debt in future but that’s life). I agree with Gail’s logic here.
In Toronto, a good house in a good neighbourhood is $400,000. Saving $80,000 in cash is hard for the average family to come up with, in addtion to the ~$10,000 in renos that it will likely need..I’m no fan of 5% down and prefer 10%, but this rule needs to reflect the community. I suspect that most adament 20% downers are from smaller communities where the math is friendlier.
From a business perspective, buying a house out of town that would have allowed our downpayment to be at 20% would have meant a lot more gas and transportation and wear and tear and pita costs. In effect, trading a capitalized expense (mortgage) for an expense with no ROI (fuel). At least when I’m paying my mortgage I’m building equity in an appreciating asset (in the long run, 10 – 20 years, real estate is an appreciating asset it’s just the timing that’s fickle).
I suspect, like having children, depending on the situation, one runs the risk of missing their true window of opportunity if they wait for the math to be perfect and instead must make calculated decisions. In other words, if you wait until you know 100% that you can afford kids, you may be too old to have them. Similarly, if you want to own a house in a major metropolis, you have to make choices and not wait on a specific rule necessarily. Life is about risk and reward, choice and consequences, and hard rules don’t always work but guidelines are wise.
April 8, 2009 at 1:14 pm
And LMT — while I think you have a point, it’s simplistic to say that home ownership for everyone is the root cause of the current economic fiasco. That’s like saying ‘greed’ or ‘envy’ were the causes. There were a series of factos including how credit was granted too easily with too little oversight but especially how risk was managed (the danger was not that people didn’t want to take on risk, but they took on more than they even knew they were). Factor in a major war and a recession and the effects are magnified. I don’t think that home ownership is such a terrible goal to have, quite frankly but the means to achieve it must be ethical and logical.
Personally I think it’s wise to remember that people always think the good times will always last and the bad times will never end and the reality is very much up to the individual to decide.
PS Joanne I think you’re awesome to be where you’re at. Kudos!
April 8, 2009 at 2:02 pm
geoff- I need you to talk more about that 5% addition to the downpayment. yesterday in the First Buyers Seminar, they were discussing an RRSP loan. Can you pls elaborate on this? I’m still a newbie to all of this!
BTW- Joanne- thanks for your feedback!
April 8, 2009 at 3:32 pm
Interesting discussion on mortgages and downpayments. We built our house 3 years ago and had 20% down (just) but now the value of our house has dropped about $45,000 and now technically we don’t have 20% equity (based on market values). Very frustrating. Only a problem if we plan on selling and we do not but it is disheartening.
April 8, 2009 at 3:32 pm
Tiffany – what I meant was that it may make sense to borrow funds to clear the 20% threshold to not pay CHMC.
In other words, if you have cash on hand that’s equivalent to 15%, it may make more sense to borrow the additional 5% to not pay the CHMC fee, if you think you can pay the back the loan before the interest charges for that money exceeds the CHMC fee you avoided. In other words, if by borrowing $5000 you save $3000 in CHMC fee and you can pay the loan back BEFORE you accumulate $3000 in interest charges on the loan, you’re coming out ahead. The KEY here is being confident to pay back the loan. That’s key and why I personally wouldn’t borrow more than 25% of my downpayment for it. (So if you only have 10% down, I wouldn’t borrow the other 10% because that could be a lot of money).
I’m not sure but you may be referring to the Home Buyers plan, which is taking money out of your rrsp into your downpayment which can be an excellent or horrible idea depending on circumstances (generally I believe it to be positive).
April 8, 2009 at 3:34 pm
You can borrow up to $20,000 from your RRSPs under the Home Buyers Plan (HBP). Interest free, you get a 2 year grace period, then you have to start paying the amount back. But, you get 15yrs to do it. I have my payments fixed at a 5 or 6% rate I think, but my actual rate is 1.75%.
I don’t want to take business away from anyone, but Tiffany my mortgage broker is in Etobicoke. I’d be happy to refer you if you like – Annette is her name. As I said, she was fabulous to work with and we got on really well – partly due to the fact that she’s from England, we both like the same brand of English tea and are obsessed with needlepoint!LOL Seriously she was very patient with my questions as a first time buyer. I highly recommend her.
April 8, 2009 at 3:40 pm
I think a mortgage broker is always the way to go (I happened not to, but got a guaranteed interest rate for 2 years while the house was being built – I’m told they don’t do that anymore).
However, that doesn’t STOP you from going to a bank yourself and comparing what you can get from them yourself. In general though, every single person I know has been able to get a better rate through a broker – to the point where I personally wouldn’t bother going directly to the bank.
As far as mortgage insurance goes: avoiding paying it if you can makes sense. You don’t get anything for that money, you’re basically paying to insure the bank against the possibility that you’ll default. Yay for them… but nothing for you. So if you can save the extra downpayment, it would be good to do so. Depleting an emergency fund to make the extra downpayment, on the other hand, you would want to think long and hard about.
April 8, 2009 at 3:51 pm
Thanks everyone!
BTW- Leslie- sure, please give me her contact details…not sure how to go about exchanging info on here. And also- the allowable RRSP under the Homebuyer’s plan has actually increased to $25K per person. So, in reality, my fiance and I would be able to max out our RRSP’s and pay the 20% (assuming that we will be buying a $250K purchase price home).
Geoff- We will have $37.5K (combined) by December. This will be done at the same time we are:
- Paying off debts
- Saving for our wedding
- Putting money into an emergency fund
Would you all say that we are on the right path so far? Our goal was to have 20% (50K) by May 2010. The first priority is to lessen the debt by 50%, if not, by 100%. We hope this to be done in 20 months.
Our plan is to take out a loan and put it towards the RRSP’s. Then, withdraw the money through the HBP and purchase the house. What are your thoughts?
April 8, 2009 at 3:56 pm
quote [In other words, if you wait until you know 100% that you can afford kids, you may be too old to have them.]
Amen to that. Some things are more important than money, and gambling with these things, you sometimes don’t know with what you’re gambling until it’s too late.
April 8, 2009 at 4:02 pm
LMT….I disagree with you. Thank you Joanne and Geoff for clearing up the misinformation. My husband and I and did not have the 20% and yes we had to pay a bit to have CMHC insurance but there was an opportunity to purchase that we could not pass up and because my credit rating was stellar (hubby’s not so much), we got a fabulous interest rate to boot on a “regular” mortgage and we made extra payments when we could. We are now way ahead because we made the purchase. Five years ago, we were not sure what we were getting into but absolutely no regrets now! Also, 2 big thumbs up for mortgage brokers, we just renewed, she was wonderful, came to our house (from Kitchener to Burlington) and well never go back to deal with the banks directly again!
April 8, 2009 at 4:48 pm
Tiffany, I think you’re doing a great job and ultimately you’re the best judge.
I would strongly recommend you try to avoid entering into a mortgage carrying any consumer debt especially if you’re getting married (they’re expensive, I know from experience and more expensive than your budget in excel will tell you now
My other question is make sure you have lots of money left over to pay closing costs, buying a ladder, upgrading the electrical, fixing the roof, moving the plumbing, whatever (even new houses require fences, lawnmowers, fixtures, blinds, etc).
Lastly, the HBP is a fantastic vehicle for your plan, I am confused by your need to take out a loan if you have nearly $40 saved up already but I may be misinterpreting you.
Two points on the HBP plan: First, choose only guaranteed fixed income products to invest in in your RRSP as 3 months later you will be withdrawing it all and can’t afford even a 5% drop. Second, make sure there’s no early withdrawal fees if you withdraw it after the minimum 3 months.
Last tip: Having sold our condo, bought a house, and had a baby in the same 3 week period (yeah 2007 was busy) one tip I’ll share is that buying a house is a good time to get your lawyer to write up wills and power of attorneys at the same time. You have to go there anyway and he or she will cut you a deal I’m sure on these if you don’t have any.
April 8, 2009 at 5:07 pm
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April 8, 2009 at 6:04 pm
Gail, could you perhaps blog on how CIBC has raised it’s Prime + x rates by 1%?
So, instead of a LOC being prime + 2, it’s now prime +3. Combine this with them raising a lot of their fees by 50%.
April 8, 2009 at 8:08 pm
actually Gail, if you could touch on what banks are best for what products that would be great:)
And btw RM waterloo, we are currently with CIBC too and would like to change because it is getting ridiculous. (and we only have a chq account! no loans/credit!)
April 8, 2009 at 10:26 pm
Hi everyone… Just last week we went to our bank to ask for an additional line of credit. So here’s the story. We have an LOC of $20,000. Things were pretty bad for us because of the recession. We told our banking officer if he could add an additional $5,000 on our LOC. Then I asked him if its possible to put our debt into our mortgage. Our mortgage is for renewal next year. The current rate that we have is 4.99%. I would not mention the name of the bank because maybe others will question how that happened. Our banking officer lowered our rate to 4.15%. So last week we renewed with them. The good thing about that is we paid or LOC by adding it to our mortgage. He didn’t let us pay for the penalty charges because of breaking our current mortgage. We still maintained our current bi-weekly payment. I sleep more peaceful now knowing that the huge amount of LOC that we had before is gone. I can say that we are more wiser now.
April 8, 2009 at 11:06 pm
Gail, thanks so much for answering these questions. It’s great to hear your responses to the real-life questions.
April 8, 2009 at 11:25 pm
If you can roll your home equity line of credit into your mortgage, at renewal time, do it. The home equity line of credit is a secured demand (repayment can be asked for at any time) loan. Even if you are current on your mortgage payments, you risk losing your house if you default on your HELOC. Whereas with only a mortgage, you have until the end of the term, as long as you are current, before the bank can technically demand payment in full for what is owing.
April 9, 2009 at 9:50 am
Gritty — though I think you’re technically correct it’s unlikely a bank would do that as it would force a lot of their customers to go into bankruptcy, and their real return on investment is in getting paid the interest they owe, not seizing the assets of their borrowers (especially if it’s an asset declining in value). Canadian banks are well capitalized and if things get so bad that banks start doing that, crime and riots in the street will be a much higher priority level. (Just my opinion).
April 9, 2009 at 10:13 am
I find it so interesting that people would be so commonly using mortgage renewal time to increase their principal on their mortgage (by rolling debt into it). I realize that it sometimes makes sense but our parents (I’m 35) would never have done this. I’m not sure if they just didn’t get the opportunity through banks, but the mortgage was a one time loan for 25 years, and not a revolving source of credit. The banks make it so tempting & easy to add to the mortgage every 5 years I wonder how many of my age group will get to 50 and still have a mortgage because they fell into this trap.
April 9, 2009 at 10:37 am
Geoff, let’s hope that Canadians have it in them to take to the streets if this should ever happen. Over the last couple of decades, it seems that we North Americans have just sit back and taken whatever rubbish our political and economic elites (usually one and the same)have shoved down our throats. The kinds of stuff that governments and corporations get away with here, would lead to protests riots in Europe and elsewhere in the world.
April 9, 2009 at 10:39 am
protest and riots.
April 9, 2009 at 10:53 am
Here’s where my history degree comes in handy – Canada comes from a tradition of non-revolution, as opposed to US revolution. In addition we are influenced by US capitalism which provides a balance to European inclination for protest/violents (ie protests of 1848 or the italian youth riots of a few weeks ago, the list is quite long). I am buying stocks, not canned goods, and think the economy will turn around quicker than people think it will (which is within my risk tolerences, I hope
Personally, I think protest that achieves goals peacefully is the only method of protest that is valid. Violence, riots, etc achieves nothing. It’s also myopic to say that Canadians just accept whatever government does, ranging from failure of Constituational Accord up to the idea of Green Shift Idea by the Liberal party which got soundly voted on and rejected.
I much prefer the Canadian approach to seeing cars on fire and our youth out of control. Don’t fight the system, Change it from within. Empowerment is superior to fear and anger and that’s what we should be focusing on. Rant over
April 9, 2009 at 11:44 am
Jane – my parents NEVER had a mortgage, because my father saved his money and built his own house on property that he got from his father. Unfortunately, these days, that’s not the case anymore, and prices have risen dramatically for everything. You should only consolidate your debts into your mortgage IF you promise not to run up the cards again, and to put extra effort into paying off the mortgage. If you can’t do this, then no, you shouldn’t consolidate. With credit card interests very high on some cards, it makes sense to go to a lower interest rate and really hammer away at it. Also, Jane, not everyone starts out getting a house and starting a family as young as they used to. Times have definitely changed.
April 9, 2009 at 11:57 am
Jane – I agree with you completely. I can see in dire circumstances adding other debt onto your mortgage, but some people seem to think that if they roll this loc debt into their mortgage they are now debt free. They still owe the same amount, just changed where they are owing it to and paying lower interest rates on it.
April 9, 2009 at 4:06 pm
Tiffany, a few things about the RRSP First Time Homebuyer’s Plan, you can not withdraw money that was deposited less then 90 days prior to your home purchase, so if you’re taking out a loan and depositing the money into an RRSP, make sure that you do that more then 90 days in advance. Also, the max you can withdraw was just increased to $25,000 (per person, $50,000k per couple).
With regards to repayment, you have 15 years to repay the money into your RRSP but remember that you must repay at least 1/15th each year – for example if you withdraw $15,000 you must repay at least $1,000 each year, you can’t repay $500/year for 14 years and make up the balance in the final year.
April 9, 2009 at 5:28 pm
As for the HBP repayment. Shannon is correct – you can’t skip a year and then make it up the following year. If you miss indicating it on your income taxes you will have to claim that money as an income (my self employed husband had it happen one year – but it worked out okay since he didn’t have any income that year
) ). But keep in mind – repaying more than your “required” amount doesn’t actually help you. The money is going to the same place – your RRSP fund all the HBP is is the method in which you withdrew the money tax free. Therefore, say you put $5000 into your RRSP a year, and have a $500.00 payment due for HBP (home buyers plan). On your taxes you indicate 500.00 for HBP and you get to use $4500 as a tax credit. If you put more against your HBP – yes you are getting the total due down but you are not allowing yourself to use the full amount towards your taxes. The money still goes to the same place – it is just how it is put on paper for your taxes.
The year I was on maternity leave with my twins (it spanned 2002 and 2003 work years) I had to ensure I had enough in my RRSP contributions to make sure that I had at least enough to indicate my HBP repayment. Because the HBP is a tax free loan to yourself you have to think of it not so much as a debt that needs to be repaid but more of how can I utilize this to my advantage (ie; tax benefits since we are typically in larger tax brackets right now).
April 10, 2009 at 7:20 am
Jane, rolling debt into your mortgage is not a bank “trap”…the trap is all the junk debt folks accumulate through credit cards and buy now pay later…then, when they can’t juggle all those payments and/or are not geting anywhere on the debt because of the giant interest rates and they come to the bank for help that’s when we will look at rolling it into their mortgage if the equity is there…the reason we suggest this is because 9 times out of 10 they won’t qualify for the huge unsecured consol loan they need to pay off all that other non bank debt so their real estate equity is the only way to go…most folks don’t have all this crazy debt because the bank gave it to them…it’s the buy now pay later…it’s the credit cards that are everywhere just waiting for you to grab them…it’s the payday advance places etc…I’ve said it before and I wil say it again…get your credit from a bank!..sit in our office with us and we will go through your finances and advise you on whether more credit is even suitable for you….I do it everyday with clients..I give them a plan and alot of advice but only they can ensure that plan is executed….
August 18, 2009 at 6:39 pm
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September 4, 2009 at 7:20 am
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September 9, 2009 at 9:41 pm
My husband and i are 50,000 in debt with credit cards/line of credit. we would like to buy a house and are thinking of finding an institution that will add the debt the mortgage it seems like forever to pay of the debt but at cc interest rates we are not paying them off. we have 2 young children and i need to find a place for my parents to move into because my mom is not going to be able to work much longer. am i nuts to want to do this instead of renting a house?
September 16, 2009 at 5:27 am
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September 30, 2009 at 7:51 am
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May 17, 2010 at 6:07 pm
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May 28, 2010 at 12:28 am
we have 2 young children and i need to find a place for my parents to move into because my mom is not going to be able to work much longer. am i nuts to want to do this instead of renting a house
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June 13, 2010 at 8:55 am
In Nov/10 my mortgage is up for renewal. The balance will be $55,000 at that time(will be paid off by Nov/14). I have about $125,000 home equity. I have a line of credit balance of $12,000, credit card debt of $15,000. I’ve recently cut up my credit cards and am serious about paying down all of my debt by Nov/14. I am 52 yrs. old and am looking forward to retirement with as little debt as possible. My question is: should I consider consolidating all of my debt when I renew my mortgage this Nov/10? Also, 3 yrs ago I went through breast cancer. It was very early stage and very low risk of recurrence. If I do consolidate, will that affect my ability to continue the life insurance on my mortgage?
July 20, 2010 at 10:04 am
this article helped to the mortgage rate is lower than the equity loan rate, consolidate to lower your costs.
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James