Personal Finance

Simple question - But I need an intelligent answer - to pay or not to pay OSAP yet...

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  • Jul 10th, 2014 11:29 am
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Deal Fanatic
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Oct 5, 2007
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Simple question - But I need an intelligent answer - to pay or not to pay OSAP yet...

I have 15K of OSAP left to pay off

I am also thinking of saving up for a property - mortgage

Question...

Is it better to pay off the 15K

OR

Is it better to just pay monthly interest (5.0%) ($750/year) SO that I have a higher downpayment for a mortgage

Will having OSAP affect my ability to get a mortgage?

Any long term/short term stuff i Should think of?

Insight please

Thanks.
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Nov 2, 2013
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When considering you for a mortgage, the bank considers your debt to income ratio. If all your monthly debt payments are approx 1/3 or less of your gross income, then you'll be fine providing your credit is good otherwise.
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Aug 18, 2005
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Pay off all debts, including OSAP, before buying a house.

The answer to this question is not governed by numbers or interest rate calculations. Eliminating debt creates peace, and you will make better decisions in all aspects of your life, including housing related decisions, when you have that peace.
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Aug 2, 2014
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Depends:
When are you planning on buying a home?
If the answer to that is sometime down the road of life then pay off the OSAP. Keeping that debt around is not helping you and $750/year is a chunk of change

If that 15K helps you get over CMHC insurance milestones and you have lots of cash coming in then that is the only reason I can think that not paying OSAP right away is worth it.
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hmmm very insightful .... my monthly debt payments are wayyyy less than 1/3 of my gross income

Okay lets say in 2 years I decide I am buying a house.... AND.....

Scenario 1:

A) I paid off my entire OSAP (bank bal is 15.00K less than it should be - bcuz osap piad off)
B) my credit is good
C) BUT I need 15k more for the downpayment of a home

*Would I be able to get another loan that will give the same interest as osap or lower (5% or lower) to cover the 15K ANDDDD still apply for a mortgage on top of that?

Scenario 2:

A) I still have my 15K OSAP debt (bank bal - 1.40k less than it should be - bcuz int paid on osap)
B) my credit is good (bcuz ive met min. payments on all my debt)
C) I have the money for the downpayment of a house

*Would i easily be able to get a mortgage with 15 k student debt?

If you were in my scenario in 2 years, what path would be more beneficial?
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Nov 27, 2006
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interest on student debt can be written off on your taxes.

food for thought
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Mar 31, 2009
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With a 5% interest rate that is tax deductible, I think the decision is close. If the interest was higher, it'd be a no brainer that you should pay it. If the interest was a bit lower, it'd be more obvious that you could be better off investing the money or something. But I'd say probably pay it off.

Having student loan debt decreases the size of the mortgage you'd be allowed. And you probably shouldn't buy a house anyway if you're having to make student loan payments, would make your cashflow feel tight. Pay the debt off, then save a 20% down payment (avoid CMHC insurance) then buy.
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Mar 24, 2008
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sirex wrote: interest on student debt can be written off on your taxes.

food for thought
Paying $1 to get back $0.30 in taxes is definitely a good strategy. Very insightful, is that what you did?

OP, pay off your OSAP debt as soon as possible.
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Jun 27, 2005
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ksgill wrote: Paying $1 to get back $0.30 in taxes is definitely a good strategy. Very insightful, is that what you did?

OP, pay off your OSAP debt as soon as possible.
Paying $1 to get back $0.30 in taxes is definitely a good strategy if you're just going to exchange it for different debt that will cost you more than $0.70.

OP, you have to work out the numbers based on mortgage interest rate and your marginal tax rate.

In regards to whether you'd be able to get a mortgage or not depends on your total debt to income ratio. Basically, you can only borrow a certain percentage of your income - having the OSAP loan will reduce the max mortgage amount you are allowed. But at the same time, reducing your OSAP will increase your max mortgage amount, but will reduce your downpayment.
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Man the 20% downpayment is sooooooo high though

I feel like you need every little dollar you can get just to meet he 20% requirement

Additionally - People have also already told me that student debt is 'good debt' to have, and it won't affect my credit that much as long as i make payments.....

.......But now you guys are telling me I wont even be able to get a high mortgage with a student debt on my hands :/

I mean in terms of my monthly payments being tight - my student debt is just $60/month .... to me it's not really a big deal.........yet, lol
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2heaven wrote: Paying $1 to get back $0.30 in taxes is definitely a good strategy if you're just going to exchange it for different debt that will cost you more than $0.70.

OP, you have to work out the numbers based on mortgage interest rate and your marginal tax rate.

In regards to whether you'd be able to get a mortgage or not depends on your total debt to income ratio. Basically, you can only borrow a certain percentage of your income - having the OSAP loan will reduce the max mortgage amount you are allowed. But at the same time, reducing your OSAP will increase your max mortgage amount, but will reduce your downpayment.
lol see how complicated this can get

i definitely need to crunch numbers.... thanks for the insight everyone

PS. i have no idea what a CMHC insurance is and what it means to avoid it....
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Mar 25, 2005
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sirex wrote: interest on student debt can be written off on your taxes.

food for thought
Its not a write off. Its a credit.
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ez_86 wrote: Man the 20% downpayment is sooooooo high though

I feel like you need every little dollar you can get just to meet he 20% requirement

Additionally - People have also already told me that student debt is 'good debt' to have, and it won't affect my credit that much as long as i make payments.....

.......But now you guys are telling me I wont even be able to get a high mortgage with a student debt on my hands :/

I mean in terms of my monthly payments being tight - my student debt is just $60/month .... to me it's not really a big deal.........yet, lol
If 20% is high, keep saving. Home ownership creates more financial burden- save a larger payment now and pay off your student loans. Sure, student loans are good debt vs. credit cards- but dollars spent on interest are still dollars out of your pocket.
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cool...

I just want the best path to secure a mortgage in 2 years .... or maybe im just dreaming .. especially with increasing house pricing.
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Aug 17, 2008
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Sask.
Pay off the debt you have first; you will feel SO much freer.
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Apr 11, 2006
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OP, your scenario assumes paying only the interest on the OSAP loan, and not paying off any of the principal. I think that's just silly. Also, you keep saying, you'll have $15K less for the down payment in two years time, but the thing is you don't even know what home you're going to buy and what size mortgage you're going to need.

Pay off the OSAP loan and be done with it. Your thinking when it comes to the home purchase should just be what you can afford in two years time.

What happens if, you decided not to pay the OSAP loan, and in two years time when you're shopping for a home, you don't find that there isn't one you like for the price range you want to spend or can get a mortgage for. Then you end up having to postpone, and would have to continue sinking interest payments into that loan.
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Jul 18, 2009
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2heaven wrote: Paying $1 to get back $0.30 in taxes is definitely a good strategy if you're just going to exchange it for different debt that will cost you more than $0.70.

OP, you have to work out the numbers based on mortgage interest rate and your marginal tax rate.

In regards to whether you'd be able to get a mortgage or not depends on your total debt to income ratio. Basically, you can only borrow a certain percentage of your income - having the OSAP loan will reduce the max mortgage amount you are allowed. But at the same time, reducing your OSAP will increase your max mortgage amount, but will reduce your downpayment.
It's actually paying $1.00 to get about $0.20 cents back. Its a credit, not a deduction.
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Aug 10, 2011
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Especially in Toronto, I feel for you regarding the 20% down payment issue.

Even a 600sqft 1+1 condo costs $350,000 in downtown core. That's $70,000 of downpayment.

Sigh.
:confused:
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Can't you do 5%? Though your rate may be higher, but at least you'd be building equity sooner. Maybe if you're risk averse, choose a smaller place or rent out the extra room.

Student loan payment will add to the 1/3 Gross Income to Debt Ratio. As long as your other debts don't make this exceed it you should be fine, providing that you don't miss payments. Though the others are right as in it will make it considerably more difficult, especially if your income is lower.

Bear in mind that the student loan program is flexible and lets you adjust your monthly payment, and even provide repayment assistance if you lose your job or can't find one (I've been through this before). In such scenarios the government will pay off some interest for you. Also if you ever return to school you don't pay interest while you're in there.

Worst case, go find a better job (and relocate if you have to).


ez_86 wrote: Man the 20% downpayment is sooooooo high though

I feel like you need every little dollar you can get just to meet he 20% requirement

Additionally - People have also already told me that student debt is 'good debt' to have, and it won't affect my credit that much as long as i make payments.....

.......But now you guys are telling me I wont even be able to get a high mortgage with a student debt on my hands :/

I mean in terms of my monthly payments being tight - my student debt is just $60/month .... to me it's not really a big deal.........yet, lol
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Mar 24, 2008
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iEyeCaptain wrote: Especially in Toronto, I feel for you regarding the 20% down payment issue.

Even a 600sqft 1+1 condo costs $350,000 in downtown core. That's $70,000 of downpayment.

Sigh.
If you think $70,000 is a lot of money for a downpayment, you probably shouldn't be looking to own. Renting is still a perfectly viable option.

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