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Discussion Starter #1
Hi have to renew the mortgage of my rented condo in 19 months and since I bought at the peak, I am expecting the bank to ask me to write a cheque for the difference between the principal at the time and the appraised value of the house. It should be something around $30,000.

I currently have a positive cash flow that I can use to save the money due at the time of the renewal. Where should I invest that money in the meantime?

A) TFSA
B) Bonds
C) Make extra monthly payments on my HELOC and use the amount freed by paying the principal on the house
D) Make extra monthly payments on the condo mortgage
E) Any other suggestions?

I believe the bank might ask for $30,000. However, it might be less or more.
In the next 19 months, I certainly can accumulate $45,000 net. I am eager to put everything towards the condo directly in the event that the bank will not ask for the amount I am thinking about.

Any thoughts on that one???
 

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What are your mortage rates? Would be helpful to know that info, versus expected returns.

Also, do you have a low, medium, high risk tolerance?

Ball park figures of what you owe may be helpful too.
 

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Discussion Starter #3
What are your mortage rates? Would be helpful to know that info, versus expected returns.

Also, do you have a low, medium, high risk tolerance?

Ball park figures of what you owe may be helpful too.
Interest rate on the condo is 5.09%
Interest rate on the HELOC is 2.5%
Interest rate on the LOC is 3.25%

I would usually tolerate high risk, but since this is for my condo and I want to make sure I have at least $30,000 available somewhere in 19 month, I am not willing to take huge risks. As of now, I still owe $260,000 on the condo and it might not be worth more than $225,000 to $230,000.

We just bought the house with a 20% down payment for $360,000, and the mortgage is for $288,000.
 

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Well use the TFSA for $10k and another $5K in each of the next two years. For the other $10k I would pay down the LOC.
 

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I'd have to calculate, but I think the LOC would be where I would focus as well, since that interest isn't tax writable, while the one on your rental property is ...
 

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Is the interest on your LOC and HELOC tax deductible since it's a rental property?

I probably wouldn't pay those off if they were.

Do you do any trading? I think using your TFSA account to trade is the most effective way of using a TFSA account.

If you are adverse to risking any money in the market, perhaps a high interest savings account would be best with whoever is paying the highest interest these days.

I wouldn't put any money in bonds right now, especially long term bonds. Short term bonds also have low yield which is comparable to the savings account.
 

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Discussion Starter #10
Is the interest on your LOC and HELOC tax deductible since it's a rental property?

I probably wouldn't pay those off if they were.

Do you do any trading? I think using your TFSA account to trade is the most effective way of using a TFSA account.

If you are adverse to risking any money in the market, perhaps a high interest savings account would be best with whoever is paying the highest interest these days.

I wouldn't put any money in bonds right now, especially long term bonds. Short term bonds also have low yield which is comparable to the savings account.
Since the money freed on the HELOC would go towards the condo mortgage that we are renting, I think the amount used on the LOC would be tax deductible right?
 

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Since the money freed on the HELOC would go towards the condo mortgage that we are renting, I think the amount used on the LOC would be tax deductible right?

I'm not a tax expert, in fact I usually just call the CRA and give them my situation for them to assess. Even then, I'm not 100% convinced that they are giving me the correct advice but at least I asked. I've had problems with their advice before.

Anyway, since the money from the HELOC was taken to invest in a 2nd property which is generating income that you are reporting, I would say that the interest should be tax deductible. Same with the LOC. Therefore, there is less value in paying off your HELOC but you'll have to do that math yourself to determine how much you'd come out on top.
 

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davext said:
Is the interest on your LOC and HELOC tax deductible since it's a rental property?
The interest on the HELOC is not tax deductible since its not a rental property.

carllecat said:
Since the money freed on the HELOC would go towards the condo mortgage that we are renting, I think the amount used on the LOC would be tax deductible right?
Upthread, you said that you have no debt other than the mortgage on your condo, and the HELOC on your new home. You did mention an interest rate for a LOC, but its not clear where this fits into the picture. Clarify?

You can refinance debts without jeopardizing interest deductibility, so if you are proposing to borrow from your HELOC, as equity becomes available, in order to pay down the higher-interest mortgage on the condo, then tread carefully ... unless you can bust up your HELOC into multiple separate and distinct borrowing “accounts”, then you may end up commingling deductible and non-deductible debts in the same account ... you do NOT want to do this ... not only will it produce bookkeeping headaches, but it is tax-inefficient to boot.
 

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Discussion Starter #13
The interest on the HELOC is not tax deductible since its not a rental property.


Upthread, you said that you have no debt other than the mortgage on your condo, and the HELOC on your new home. You did mention an interest rate for a LOC, but its not clear where this fits into the picture. Clarify?

You can refinance debts without jeopardizing interest deductibility, so if you are proposing to borrow from your HELOC, as equity becomes available, in order to pay down the higher-interest mortgage on the condo, then tread carefully ... unless you can bust up your HELOC into multiple separate and distinct borrowing “accounts”, then you may end up commingling deductible and non-deductible debts in the same account ... you do NOT want to do this ... not only will it produce bookkeeping headaches, but it is tax-inefficient to boot.
Please read HELOC instead of LOC.
 
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