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  • Apr 12th, 2022 2:42 pm
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10 replies
Member
Jan 31, 2007
319 posts
39 upvotes
Montréal, QC
I guess you can get something like the RBC Homeline Plan. It can have multiple products within it. So in your case you can have say a 100k mortgage and a 50k heloc together. The heloc portion would grow as you pay down the mortgage. Once you're done with all the new house expenses, you can even convert the portion you used on the heloc into another mortgage to possibly take advantage of lower rates.
Deal Addict
User avatar
Jul 25, 2015
2544 posts
2555 upvotes
Burnaby, BC
Your insurance will be cheaper if you pay it off. Dont have to deal with monthly payments or worry about rates.
Deal Addict
May 16, 2017
2809 posts
3663 upvotes
Piklishi wrote: Your insurance will be cheaper if you pay it off. Dont have to deal with monthly payments or worry about rates.
Except "it" won't be paid of. It will be either a conventional mortgage or a HELOC (which IS a mortgage by another name). HELOC with a balance is still payments and rates.

I don't recall that my home insurance changed (at least not worth noticing) when I had free-and-clear title on my home.

The biggest advantage of HELOC is flexibility, both to draw on it and to pay it off as quickly as possible.
Deal Addict
Nov 27, 2013
1768 posts
2593 upvotes
Why not keep a portion of your sold house say 100k and mortgage the new house for 140k? Essentially getting you that 100k at mortgage rate.

New appliances, fence , deck , paving , shed, ,turf, etc etc aren't cheap.
Deal Fanatic
Jan 15, 2017
5750 posts
6122 upvotes
Ottawa
Really comes down to how quickly you can pay it off.

Both a mortgage and HELOC have your home as collateral. HELOCs offer the flexibility in that you can borrow the amount you need when you need it. HELOCs are fully open so you can pay off as much as you can without any restrictions. HELOCs though generally come with a higher interest rate than a mortgage and HELOCs are generally compounded monthly instead of semi-annually like a mortgage.

A mortgage has great flexibility also. You can shorten the amortization to pay it off quickly. Most mortgages come with great pre-payment options that allow you to pay off the mortgage more quickly. One option if your ability to make extra payment exceeds your mortgage's pre-payment options is to select a mortgage with a 1 year term as you can pay more money when the term expires.

You state that your plan is to pay it off quickly and aggressively so it really depends on how long this will actually take. Lots of people like having a HELOC on their home as an emergency fund and a quick source of credit should they need it so you may want to consider a HELOC anyway even if you plan to put everything on a mortgage.
Deal Addict
Feb 25, 2007
1569 posts
1129 upvotes
Ottawa
skeet50 wrote: HELOCs offer the flexibility in that you can borrow the amount you need when you need it. HELOCs are fully open so you can pay off as much as you can without any restrictions. HELOCs though generally come with a higher interest rate than a mortgage and HELOCs are generally compounded monthly instead of semi-annually like a mortgage.

A mortgage has great flexibility also. You can shorten the amortization to pay it off quickly. Most mortgages come with great pre-payment options that allow you to pay off the mortgage more quickly. One option if your ability to make extra payment exceeds your mortgage's pre-payment options is to select a mortgage with a 1 year term as you can pay more money when the term expires.
Great points by skeet50. I would add:
  • All HELOCs are variable rate. So if you want to lock in your interest rate, a fixed-rate closed-term mortgage (though with prepayment privileges) is your only option. If you prefer variable, you have more options.
  • There are some interesting variable rate mortgages out there that are "semi-open". So for instance in spring of 2020 we took out a HSBC variable rate mortgage with a great rate (in our case, for investment purposes). HSBC's variable rate mortgages have the feature that while they are on a 5 year term, after 3 years they are fully open. So it is our choice how and whether we pay the mortgage off anytime from next spring to spring 2025. I'm not trying to shill HSBC in particular; just be aware such hybrids exist.
Deal Guru
Dec 11, 2008
13064 posts
3754 upvotes
Jokerpersona wrote: We're moving into a basically paid off home in a few months, new construction. There's roughly $40k to get to mortgage free between our sold house gain and new house price.

Since it's new construction, there's a ton of things we'll need and want to do straight away (blinds, washer dryer, fence etc.), lots and lots and looking at probably 50-100k total, most likely closer to 50k.

So, looking at options, is it better to do a mortgage or HELOC in this situation? Or are we locked into a mortgage only option since the house isn't fully paid off so we'd need a mortgage anyway for the $40k?

In either event, it would be probably either $100k or $150k mortgage or HELOC needed. What's better in this situation? Plan is to pay it off quickly and aggressively, income no problem and are approved for much, much higher.
We had similar situation. Mortgage was up for renewal and had $67k on it left. Decided to get a HELOC and pay off the mortgage so we only had HELOC debt. Than paid that off when we felt like it since we also was borrowing from HELOC for investing purposes.
Deal Addict
Nov 27, 2013
1768 posts
2593 upvotes
Jokerpersona wrote: I was about to reply saying that's essentially the same as what I'm proposing, but it actually isn't, and it's a good point. Appreciate that.

Good responses from everyone, thank you.

Leaning towards your advice above, and maybe adding the re-advanceable mortage into it. $140,000 mortgage + largest HELOC to start with, keeping $100,000 from the house sale in cash.

Use the cash money to pay for the things we want to do, still have the mortgage, and the HELOC, and the HELOC will grow as we pay down the mortgage.

It's a tough decision either way, sounds like there isn't inherently a right answer here.
Yeah you have many options but none of them are obviously better than the others. Personally this is what I would do but I don't think you be necessarily making a mistake doing something else.
We went through a new build 4 years ago and everything costs 5 digits. It's nice to just have that money available in the bank to pay for it all (we didn't)
Deal Addict
Jul 15, 2009
3649 posts
3043 upvotes
HELOC gives you flexibility, mortgage gives the bank stability. The bank compensates that stability with a somewhat lower rate. Figure out how much flexibility you need and are willing to pay for.

Mortgage is good when buying a house. You know the exact purchase price before finalizing the mortgage and you usually want fixed monthly payments.

When paying for random improvements, you don't know the full amount up front, so a HELOC makes sense. You borrow as and when you need it.

If you don't need (and don't want to pay for) the full flexibility you can get both. Use a mortgage for a fixed loan amount and a fixed repayment schedule for part of your needs, and then have full flexibility on a HELOC for the rest. That way you're only paying for the flexibility that you need.

If you start with a HELOC, you can convert part or all of it to a mortgage at any time, but not the other way around (except at expiry of the mortgage term). So you could start with a HELOC first, then lock in part of it later if you decide.

Obviously discuss all this with your lender.
Deal Addict
Jun 22, 2011
1340 posts
1199 upvotes
Personally I would take a larger mortgage, mostly because mortgage interest rates are relatively low and it's easier to have the money and then use left over for a lump sum payment later.

Have you talked to your broker/lender about this at all? I don't think your situation is unique, and they can likely let you know your best move.

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