Canadian Money Forum banner

1 - 6 of 6 Posts

·
Banned
Joined
·
42 Posts
Discussion Starter #1 (Edited)
Just finished paying off all consumer debt...Now What??

We just made the last payment on our personal LOC today...that was the last of any consumer debt. We paid down a little over $43K in about 20 months. It feels so good to have our financial house in order!!:)

We still have our mortgage at Scotia. It is 5 yr fixed @ 3.65% with 3.5 yrs remaining. I have increased our bi-weekly pymt by15%, the max allowed. I went to my branch today to discuss the option of getting a HELOC with lower rate to use as a tool to make the 15% lumpsum annual pre-payment and pay both concurrently. The guy had no idea about the concept....never heard of it. He suggested might be better if I just saved the money for a year, then made the payment. I felt they were not eager to help me find the most efficient way to pay off my mortgage.


What should I do for maximum benefit?
 

·
Banned
Joined
·
2,508 Posts
HELOC rates with Scotia are being set at prime 3%+ 1.0 %, so you would be losing money by converting it to a HELOC. That's why the banker was looking at you so funny.

If you believe equity index funds can beat 3.65% and you have a good timeline, invest in the markets by dollar cost averaging with e-series mutual funds.
 

·
Registered
Joined
·
12,723 Posts
Short of your line of credit idea, look into using your TFSA to accumulate your lump sum repayments. Since your anniversary is early in the year (March/April?) consider withdrawing the accumulated lump sum in December so that the contribution room is freed up for January. But between you and your partner, you ought to have $30k in contribution room by January, which should be sufficient.

Good work on the debt repayment!
 

·
Banned
Joined
·
42 Posts
Discussion Starter #5
HELOC rates with Scotia are being set at prime 3%+ 1.0 %, so you would be losing money by converting it to a HELOC. That's why the banker was looking at you so funny.

If you believe equity index funds can beat 3.65% and you have a good timeline, invest in the markets by dollar cost averaging with e-series mutual funds.
I must be misunderstanding HELOC...I think you are saying that my entire mortgage will be re-financed at prime + 1%. I thought (mistakenly??) that the current fixed mortgage rate would remain intact, and the interest charges on borrowing (using the available funds) would be set at prime +1%

I am currently using ETF's and Couch Potato strategy...I have no confidence in the markets (hold 45% in GIC's, bond fund, and money market fund) and would much prefer to pay off my house...I feel this is best for me.



Short of your line of credit idea, look into using your TFSA to accumulate your lump sum repayments. Since your anniversary is early in the year (March/April?) consider withdrawing the accumulated lump sum in December so that the contribution room is freed up for January. But between you and your partner, you ought to have $30k in contribution room by January, which should be sufficient.

Good work on the debt repayment!
We currently have $10K in TSFA's with ING...should I use this for my first payment or leave it considering this is the only liquid asset we have(expect for the LOC with $50K limit) Or maybe use a combination of the TFSA and LOC to make a bigger pre-payment.

This is very good news. Congratulations!

What have you learned from this debt experience that will prevent a reoccurrence?
It was very stressful, and I didn't like the feelings of guilt and stupidity that were associated with it.

I want to be more like my parents who were/are great earners, and more importantly, great savers (yet very generous to us as kids) who are now financially independent (Millionaire next door types)
 

·
Registered
Joined
·
12,723 Posts
You're right. Using a HELOC would not affect your rate on your mortgage. His point is that it doesn't make sense to borrow at >x% to repay another debt at x%, and it could very well be. I think it's probably a wash, and not worth borrowing to repay the mortgage.

You mention you have bond funds, GICs, etc. as investments. Are these in taxable accounts, or in your RRSP/TFSA? If they are in taxable accounts, by all means, use this money to repay your mortgage. It's probably a better after tax rate of return. If it's in RRSP, please disregard.

I'd say you can consider using part of your cash savings from your TFSA for mortgage repayment. Don't do anything that would make you feel uncomfortable. I'll say this though: you clearly have lots of room in your budget for saving, and you have no consumer debt. An available HELOC and a few thousand in cash ought to be enough to help you weather any little bumps along the road. It's a matter of how much insurance you want in terms of unproductive 'emergency fund' cash versus your saving/investment goal of paying off your mortgage. It comes down to risk tolerance. In your shoes, I'd be comfortable with a minimal cash reserve, provided I had access to a HELOC and perhaps an additional LOC at another institution (but only if it's no fee!). I'd be confident that the guaranteed savings in mortgage interest more than offsets the chance that I might need to borrow on the LOC, and that my budget allows me to quickly repay LOC debt.
 
1 - 6 of 6 Posts
Top