Refinance Question

[MooseHead]

Hey guys, I'll try to keep it short. I'd really appreciate some input from some of you more experienced investors. Please let me know what you think.



Current debt:



$12,000 student loans (6K at 4% & 6K at 6%)

$5000 renovation debt at 9% (unsecured LOC)



Duplex purchase price $82,000 with 5% down.



Currently owe $74,000 on the mortgage and the value of the property is now $120,000 (conservative figure).



80% LTV = 22K equity to pull out.



Legal and appraisal fee's = $820 which will be rolled into the new mortgage.



It would be through Scotiabank and fall under the same mortgage, however, my 74K mortgage would remain at my current rate of 2.2% and the new 23K would be at a rate of 3.39% fixed for 4 years (currently best rate I've been offered). It was explained to me briefly. Basically, it will not be a "second mortgage" but a separate entity of one mortgage, thus I will still have one simple monthly payment.



Scotiabank was willing to pay for legal and appraisal fee's ($820) if I went with a 5yr fixed, however, the current rate for such a term on a refinance is 4.9%.



All funds would be put towards my debt listed above right away, essentially making me debt free except for my 2 mortgages. HELOC doesn't really make sense as I can get a better rate by refinancing and plan on using all the funds right away. Any left over funds would be put towards renovations right away as well on my second property.





...so much for keeping it short! Sorry! What do you guys and gals think? Does this make sense? Or is there a better way of doing it that I'm not aware of.



Cheers.



Chris

 

[Sherilynn]

If that's how it works, then it makes sense to me.



Two additional ideas (assuming that you are responsible with credit, which it looks like you are):

• Ask about Scotia's Total Equity STEP plan. As you pay down the mortgage, a HELOC automatically re-advances the funds. Even though you would be maxed now, as soon as there is $5k available equity you could request that the HELOC funds be available.
  If this is your principle residence, consider getting the longest possible amortization, and then take advantage of Scotia's Match-a-Payment plan. This way your required payment stays low (for future mortgage qualification) but your automatic extra payments pay your mortgage down quickly. And you can still make annual lump sum payments.

 

[MooseHead]

[quote user=Sherilynn]

• If this is your principle residence, consider getting the longest possible amortization, and then take advantage of Scotia's Match-a-Payment plan. This way your required payment stays low (for future mortgage qualification) but your automatic extra payments pay your mortgage down quickly. And you can still make annual lump sum payments.

That's a great idea I would have never thought of doing. If I'm understanding correctly; on paper it looks like less debt service and higher cashflow, which is great for getting the 3rd, 4th, 5th... mortgage approved. However, I can make extra payments which essentially works out to the same thing. Although, I'm in the acquisition phase of my investment career so mortgage pay down isn't my main focus at this stage.



My only question is that you've stated if this is your principle residence, which it is not. Does it not make sense to do this on rental properties as well? I can't figure out why not.. *perplexed*



Thanks Sherilynn, much appreciated.

 

[Thomas Beyer]

[quote user=MooseHead]

$12,000 student loans (6K at 4% & 6K at 6%)

$5000 renovation debt at 9% (unsecured LOC)
Consider paying this off first, then buy more assets.



You did not share your income and family situation which obviously is very relevant here for a meaningful answer !



The strategy you describe makes sense, or a LOC at prime to prime + 1 with more flexible payment options !

 

[MooseHead]

[quote user=ThomasBeyer][quote user=MooseHead]

$12,000 student loans (6K at 4% & 6K at 6%)

$5000 renovation debt at 9% (unsecured LOC)
Consider paying this off first, then buy more assets.



You did not share your income and family situation which obviously is very relevant here for a meaningful answer !





Thats the gameplan and the reason for the refinance; to pay off those debts. My income is currently at $65,000 with a pay increase to $78,000 next May and capping off at approx. $90,000 in May of the following year. My wife is currently in her final year of university (nursing) and I am certainly looking forward to having two incomes!

 

[Thomas Beyer]

[quote user=MooseHead]I am certainly looking forward to having two incomes!
.. then a kid or 2 ?



Consider living on one wage and banking the rest ..



(btw: it is better for you and the world at large. Kids raised by stay at home mom (or dad) grow up healthier than with two wage earning busy parents while kids are at day care from 8-5 ! )

 

[Sherilynn]

[quote user=ThomasBeyer]

(btw: it is better for you and the world at large. Kids raised by stay at home mom (or dad) grow up healthier than with two wage earning busy parents while kids are at day care from 8-5 ! )




Just to follow your tangent, that is precisely why I started investing in real estate. Whenever possible, children should be raised by someone with a vested interest in their well-being and their future.

 

[Thomas Beyer]

[quote user=Sherilynn]

Just to follow your tangent, that is precisely why I started investing in real estate. Whenever possible, children should be raised by someone with a vested interest in their well-being and their future.
Amen to that !!

 

[Sherilynn]

The auto HELOC makes sense on revenue properties. We have it set up on one of ours and every month our HELOC increases. Then we can use it for reno's, expenses, or down payments on other properties.



However, the double payment is only really a benefit on personal residences. Since the resulting HELOC funds can be used for business borrowing, the previously non-tax-deductible debt becomes magically tax-deductible. You rapidly paydown your personal mortgage and all of that money is still available for business use. (Just be wary of debt service ratios. One must have the income to carry it.)



On many of our revenue properties, we take the longest possible amortization and do not make extra payments. What do I care how long it takes to pay it off since the tenant is paying it anyway? I am a great fan of responsible leveraging. (There are two schools of thought on this. The other is to pay off revenue properties quickly and then more of the rent is cashflow. However, that doesn't take advantage of all of the power of leveraging. Each to his own.)

 

[MooseHead]

[quote user=Sherilynn]The auto HELOC makes sense on revenue properties. We have it set up on one of ours and every month our HELOC increases. Then we can use it for reno's, expenses, or down payments on other properties.



However, the double payment is only really a benefit on personal residences. Since the resulting HELOC funds can be used for business borrowing, the previously non-tax-deductible debt becomes magically tax-deductible. You rapidly paydown your personal mortgage and all of that money is still available for business use. (Just be wary of debt service ratios. One must have the income to carry it.)



On many of our revenue properties, we take the longest possible amortization and do not make extra payments. What do I care how long it takes to pay it off since the tenant is paying it anyway? I am a great fan of responsible leveraging. (There are two schools of thought on this. The other is to pay off revenue properties quickly and then more of the rent is cashflow. However, that doesn't take advantage of all of the power of leveraging. Each to his own.)





I hear ya and I couldn't agree more either. I'd much rather have 10 income properties with mortgages vs. 2 properties completely paid off (at this stage in my life/career anyway).



I wasn't sure why you'd stated it would only make sense to take out a longer term mortgage if it was my primary residence, but it was specifically making the extra payments when doing so that you were refering to. Oversight on my part.. we're on the same page now!

 

[RedlineBrett]

[quote user=ThomasBeyer]

(btw: it is better for you and the world at large. Kids raised by stay at home mom (or dad) grow up healthier than with two wage earning busy parents while kids are at day care from 8-5 ! )


My wife and I would fall into this demographic. We pay for lots of help with the kids. There are advantages to both approaches and it's really all about how the parents go about it. We believe that happy parents make for happy children and neither my wife or I wanted to stay home. Not having as much financial pressure helps to keep husband and wife on good terms too.

 

[Thomas Beyer]

[quote user=RedlineBrett]We believe that happy parents make for happy children
yes and no.



There is no quality time. Just quantity time.



You will regret it later. Consider reducing your hours to 3-4 days a week or part-time. Two full time parents with an active career, occasional long hours and occasional travel, with 2 (or more) kids is brutal stress for kids and parents.

 

[Sherilynn]

[quote user=ThomasBeyer]Two full time parents with an active career, occasional long hours and occasional travel, with 2 (or more) kids is brutal stress for kids and parents.


Yes, but being a full-time mom (even without the real estate business) can be brutal stress for kids and parents too.

(My eldest daughter is 10 going on 17.)



My apologies for hijacking the thread, btw.

 

[RedlineBrett]

[quote user=ThomasBeyer]There is no quality time. Just quantity time.



You will regret it later.


Well parenting clearly isn't as black and white as real estate... I can't say we agree. I find the hired help de-stresses our lives immensely, and the kids get tonnes of activity and socialization with other kids. My mom and dad both worked and did the nanny/daycare thing with my little brother and I. We turned out fine. It's really all about the parent's approach.

 

[Rickson9]

[quote user=ThomasBeyer]

(btw: it is better for you and the world at large. Kids raised by stay at home mom (or dad) grow up healthier than with two wage earning busy parents while kids are at day care from 8-5 ! )


There is no universal study that shows this to be true. Individuals who believe that stay-at-home parenting offer up studies that say one thing, and individuals who don't believe that stay-at-home parenting offer up studies that say the opposite. This debate has only been about showcasing an individual's personal biases in parenting.



Also the comment is sometimes from an individual who has never spent 24/7 raising a child for any significant length of time. My daughter is almost 2 years old. I spent 1 year raising her. 24/7. I now put her in daycare. For my sanity. Kudos to the parents I know who raised their children 24/7 for a decade. That's a brutal grind.

 

[Rickson9]

[quote user=RedlineBrett]Well parenting clearly isn't as black and white as real estate... I can't say we agree. I find the hired help de-stresses our lives immensely, and the kids get tonnes of activity and socialization with other kids. My mom and dad both worked and did the nanny/daycare thing with my little brother and I. We turned out fine. It's really all about the parent's approach.




I agree with Brett. Parenting isn't a one-size-fits-all. A parent who has spent any time raising a child should already recognize this, and I don't understand how some don't. Perhaps they're not really great parents and only have preconceived biases about parenting.