Real Estate

Pre-pay mortgage or save for down payment?

  • Last Updated:
  • Aug 12th, 2017 3:46 pm
[OP]
Sr. Member
Jun 16, 2008
630 posts
226 upvotes

Pre-pay mortgage or save for down payment?

Looking for some advice from the pros here, as the advisers at the bank I've spoken to have only confused me more!

My wife and I are currently make extra payments towards our mortgage amounting to about 2x our required mortgage payment. This equals about $600 extra every two weeks.

We have about $100K left on the mortgage, and at this rate we should be mortgage free in the next 5 or 6 years.

However, we've just started looking for a bigger place, and I'm wondering if it would be smarter to stop these extra payments and hang on to the $600 every two weeks to boost the level of our down payment.

Our mortgage rate is 2.24%, but with the volatile market right now I'm not sure where I'd put that saved money to keep it accessible while still beating this rate.

And alternatively, if I continue making these extra payments towards my mortgage and in the future I use something like a HELOC to access the principal in my current place to raise a down payment, what kind of interest rate can I expect to pay?

Thanks for your help!
7 replies
Deal Expert
Aug 22, 2011
15185 posts
4253 upvotes
Ottawa
cookedDeals wrote:
Aug 11th, 2017 9:00 am
Looking for some advice from the pros here, as the advisers at the bank I've spoken to have only confused me more!

My wife and I are currently make extra payments towards our mortgage amounting to about 2x our required mortgage payment. This equals about $600 extra every two weeks.

We have about $100K left on the mortgage, and at this rate we should be mortgage free in the next 5 or 6 years.

However, we've just started looking for a bigger place, and I'm wondering if it would be smarter to stop these extra payments and hang on to the $600 every two weeks to boost the level of our down payment.

Our mortgage rate is 2.24%, but with the volatile market right now I'm not sure where I'd put that saved money to keep it accessible while still beating this rate.

And alternatively, if I continue making these extra payments towards my mortgage and in the future I use something like a HELOC to access the principal in my current place to raise a down payment, what kind of interest rate can I expect to pay?

Thanks for your help!
Most, if not all are getting prime+0.5% on a HELOC.
Deal Addict
User avatar
Mar 23, 2008
4445 posts
2078 upvotes
Edmonton
cookedDeals wrote:
Aug 11th, 2017 9:00 am
Looking for some advice from the pros here, as the advisers at the bank I've spoken to have only confused me more!

My wife and I are currently make extra payments towards our mortgage amounting to about 2x our required mortgage payment. This equals about $600 extra every two weeks.

We have about $100K left on the mortgage, and at this rate we should be mortgage free in the next 5 or 6 years.

However, we've just started looking for a bigger place, and I'm wondering if it would be smarter to stop these extra payments and hang on to the $600 every two weeks to boost the level of our down payment.

Our mortgage rate is 2.24%, but with the volatile market right now I'm not sure where I'd put that saved money to keep it accessible while still beating this rate.

And alternatively, if I continue making these extra payments towards my mortgage and in the future I use something like a HELOC to access the principal in my current place to raise a down payment, what kind of interest rate can I expect to pay?

Thanks for your help!
Are you planning on keeping your existing place if you move? If you are, you don't need to worry about taking out a HELOC to raise the down payment, as the down payment would come directly from the sale of your home.

If you're going to keep this place as a rental, you can look at something like the Smith Maneuver (https://www.theglobeandmail.com/real-es ... e12059456/), which will have the benefit of making your interest on your HELOC tax deductible.

C
[OP]
Sr. Member
Jun 16, 2008
630 posts
226 upvotes
CNeufeld wrote:
Aug 11th, 2017 10:20 am
Are you planning on keeping your existing place if you move? If you are, you don't need to worry about taking out a HELOC to raise the down payment, as the down payment would come directly from the sale of your home.

If you're going to keep this place as a rental, you can look at something like the Smith Maneuver (https://www.theglobeandmail.com/real-es ... e12059456/), which will have the benefit of making your interest on your HELOC tax deductible.

C
Definitely selling the place, not interested in renting it. The only catch is, we'd like to take our time and find a new place we really like first, make an offer, and THEN put our current place up for sale.
Deal Addict
User avatar
Mar 23, 2008
4445 posts
2078 upvotes
Edmonton
cookedDeals wrote:
Aug 11th, 2017 10:45 am
Definitely selling the place, not interested in renting it. The only catch is, we'd like to take our time and find a new place we really like first, make an offer, and THEN put our current place up for sale.
In that case, the interest for the HELOC (which can be quickly and cheaply collapsed, as opposed to a closed mortgage) should be fairly negligible. For example, on a 100K HELOC, you're probably looking at 3.5% or less. That's less than $300/month.
Sr. Member
Nov 8, 2006
533 posts
69 upvotes
Toronto
Save the extra money because once you buy the place, you will have to sell yours and most likely you will need to carry both mortgages for a couple of days/weeks....
Deal Addict
Feb 2, 2014
3956 posts
766 upvotes
Toronto
marketb wrote:
Aug 11th, 2017 9:47 pm
Save the extra money because once you buy the place, you will have to sell yours and most likely you will need to carry both mortgages for a couple of days/weeks....
You don't know that.

OP has a very small mortgage outstanding, they may be able to qualify carrying both properties.
Kevin Somnauth, CFA
Mortgage Agent and Real Estate Sales Representative
Deal Addict
Feb 2, 2014
3956 posts
766 upvotes
Toronto
cookedDeals wrote:
Aug 11th, 2017 10:45 am
Definitely selling the place, not interested in renting it. The only catch is, we'd like to take our time and find a new place we really like first, make an offer, and THEN put our current place up for sale.
Get pre-approved for a mortgage so that you know what options you have available to you. Based off that, you can decide what you want to do with your savings.
Kevin Somnauth, CFA
Mortgage Agent and Real Estate Sales Representative

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