Real Estate

Mortgage is up for renewal, refinance or just straight renew??

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  • Aug 6th, 2020 12:04 pm
[OP]
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Jan 11, 2006
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North York

Mortgage is up for renewal, refinance or just straight renew??

My townhouse is up for renewal. Renewal rates are 1.91% with CIBC. CIBC financial advisor from my local branch reached out to me and asked if I want to refinance but did not specify on the rates.

From what I see, I have 2 options:

1. renew at 1.91% variable and set it aside for 5 yrs.
2. refinance to get a bigger heloc and use the heloc to consolidate my other debts.

What are the pros and cons of each option?
9 replies
Newbie
May 23, 2011
51 posts
89 upvotes
If you have other debts then your first priority is to get rid of those. In which case you have two options.

Refinance your home mortgage fixed portion, so that you get a lump sum cash amount, pay off your other debts. Essentially you’ll be paying off all other debts at 1.91%. But your monthly payment is a bit higher.

Refinance your loan so they your Heloc has more credit. Then you can pay off your other debts and only have to pay interest on the heloc. It’s around 2.95% right now since HELOCs are always variable rate.
Your payments will be lower than option 1, since you’re not paying principle. But you’ll lose out in the long run.

There’s no benefit to just renewing the mortgage if you have other debts. Mortgage is the cheapest way to borrow money.
Sr. Member
Sep 2, 2009
829 posts
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Ottawa
What % of the house's equity do you have? What is the other debt as a % of the equity?
Most likely cheapest to finance it through the house as long as the debt is not growing.
[OP]
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Jan 11, 2006
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JoloLo wrote: If you have other debts then your first priority is to get rid of those. In which case you have two options.

Refinance your home mortgage fixed portion, so that you get a lump sum cash amount, pay off your other debts. Essentially you’ll be paying off all other debts at 1.91%. But your monthly payment is a bit higher.

Refinance your loan so they your Heloc has more credit. Then you can pay off your other debts and only have to pay interest on the heloc. It’s around 2.95% right now since HELOCs are always variable rate.
Your payments will be lower than option 1, since you’re not paying principle. But you’ll lose out in the long run.

There’s no benefit to just renewing the mortgage if you have other debts. Mortgage is the cheapest way to borrow money.

My other debt is actually a mortgage for another property.

From your recommendation, I figured the following:

1. If I refinance home at fixed portion for 1.91%, I will be saving 1.08% as my 2nd property mortgage debt interest is at 2.99%
My next question to this is, is the lump sum cash amount the same as a heloc?
I have already done a refinance and was given a HELOC sum, the HELOC sum is at 2.95% already, will the bank increase my HELOC with the new refinance? Right now I'm at 6x my salary from the 80% of the home value.

2. I already have a HELOC running, but as per my accountant, I should not use any of the portion.
[OP]
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Jan 11, 2006
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cloak wrote: What % of the house's equity do you have? What is the other debt as a % of the equity?
Most likely cheapest to finance it through the house as long as the debt is not growing.
Current home value is approximately $850,000
80% of home is $680,000


Debts:
Remaining mortgage amount for townhouse is $297,000
HELOC amount is $130,000
2nd property $220,000


Does that mean I can increase my credit by $33,000 (from 680k-297k-130k-220k)?
Sr. Member
Sep 2, 2009
829 posts
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Ottawa
brutal wrote: Does that mean I can increase my credit by $33,000 (from 680k-297k-130k-220k)?
Would have to ask your banker!

All of your debt is real estate? (no other debt?) That changes things a little bit since the situation is trading equity debt for equity debt (margin between the % is likely lower - as in, money saved "paying off" the 2nd property could end up being less than any mortgage break penalty depending on your mortgage type.)

Rolling the HELOC at 2.95% into your 1.91% makes sense with a low appraisal free (if needed).

The "increase my credit" part does make it seem like you want access to more credit? That's where it gets into personal finance more than "mortgage".
Newbie
May 23, 2011
51 posts
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Ahh ok.
So I left this out since it was late at night. But the only exception to my recommendation is if your other debts are for investments or rental property. So is your townhouse a rental property? If so, don’t pay that down since it is tax deductible.

So when you refinance and increase your fixed portion, you get a lump sum amount of money. So for easy numbers let’s say your home is 1million. And you still owe 600k. You can refinance your mortgage to 800k. And they will give you 200k cash. Your monthly mortgage payment will increase.

You can take this 200k and do whatever you want with it. Buy a car, since car loans are typically like 5%, you’re saving money. Or pay off credit card debt. Etc.

Now let’s say you didn’t increase your mortgage, but just the room in your HELOC. Well you can still take out a lump sum. The advantage of the HELOC is that you can take out as much or as little as you want, you can repay as much as you want, and you can pay as little as just the interest. Downside is the interest is higher as you know.

By rolling the debt into the mortgage, you have to take all $200k all at once, and you can only repay it based on your mortgage terms and even after prepayment, your total mortgage payment remains the same (you’d be paying off more principle than interest as you make lump sum repayments though)

So in summary: If your other debt is rental property, then don’t pay it off with your home equity.

If you have any other debt, then roll it into your mortgage now.

If you need money sometime in the future, but don’t know when and don’t know how much, leave the equity in HELOC for when you need it.
[OP]
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Jan 11, 2006
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JoloLo wrote: Ahh ok.
So I left this out since it was late at night. But the only exception to my recommendation is if your other debts are for investments or rental property. So is your townhouse a rental property? If so, don’t pay that down since it is tax deductible.

So when you refinance and increase your fixed portion, you get a lump sum amount of money. So for easy numbers let’s say your home is 1million. And you still owe 600k. You can refinance your mortgage to 800k. And they will give you 200k cash. Your monthly mortgage payment will increase.

You can take this 200k and do whatever you want with it. Buy a car, since car loans are typically like 5%, you’re saving money. Or pay off credit card debt. Etc.

Now let’s say you didn’t increase your mortgage, but just the room in your HELOC. Well you can still take out a lump sum. The advantage of the HELOC is that you can take out as much or as little as you want, you can repay as much as you want, and you can pay as little as just the interest. Downside is the interest is higher as you know.

By rolling the debt into the mortgage, you have to take all $200k all at once, and you can only repay it based on your mortgage terms and even after prepayment, your total mortgage payment remains the same (you’d be paying off more principle than interest as you make lump sum repayments though)

So in summary: If your other debt is rental property, then don’t pay it off with your home equity.

If you have any other debt, then roll it into your mortgage now.

If you need money sometime in the future, but don’t know when and don’t know how much, leave the equity in HELOC for when you need it.

Thanks for the detail assessment.

I forgot about the tax deductible on the rental property. I better not pay off the mortgage with the HELOC or cash.

As the rental is a condo and is at a fixed rate, RBC only allows 10% pre-payment per year, which eliminates the idea of paying off half of the mortgage with the HELOC.

Like everyone, my future is unknown, my goals are to invest in a larger home and to invest more into stocks.
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Jan 2, 2012
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brutal wrote: As the rental is a condo and is at a fixed rate, RBC only allows 10% pre-payment per year, which eliminates the idea of paying off half of the mortgage with the HELOC.
As mentioned if the mortgage on rental property is the original mortgage used to buy the place, then at say a 40% tax bracket that 2.99% turns into an effective 1.79% rate after tax deductions. So this should not be paid down, instead any excess funds should go to the higher residential mortgage or other investments.
Like everyone, my future is unknown, my goals are to invest in a larger home and to invest more into stocks.
If you want to expand your investments you could consider the Smith Manoeuvre, to borrow from HELOC to invest in stocks, making the HELOC interest paid entirely tax deductible.

You can also look at cash damming to use HELOC to entirely fund your rental property expenses, and putting all rental income to pay down residential mortgage, to effectively make your residential mortgage tax deductible.
Member
Apr 5, 2017
317 posts
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Hi Folks,
Bought our first home in December 2015 and took a mortgage of $399000 at 2.74% interest rate for 5 year fixed. Now it is coming up for renewal by december 2020 & the balance as of today is $329000. We never paid anything more except , may be 2-3 months double payment and then COVID_19 hit us. So now what are my renewal options ?

Should we try to pay off our mortgage first , if we can or better to invest in a second property ? We don't have any other debts other than our mortgage and I can easily pay off upto $50,000 upon renewal. Should I double up the payment again since I'm back to full time work or every year try to pay off whatever we can . What strategy is the best considering my situation ? We both do not get any pension once we retire , so we have to start saving for retirement as well. Kindly advice or share your thoughts...

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