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Mortgage question

Apri1

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Hello all,

It is time for me to get a mortgage for our new residence.
I was searching through this forum, and could not find an answer to my question.
I have two options:

1. I will use all the cash I have for a downpayment. At the same time I will apply for a secured line of credit. I will use this LOC as a downpayment for my first RE investment.
I think my TDS ratio will be better in this case. I can also deduct taxes on interest portion of LOC if I use it.

2. I will put only 20% down and use the rest to invest.

Which option is better an why?
Would be great if you can recommend a sophisticated mortgage broker in GTA.

Thank you.
 

housingrental

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The first one
Potential for tax deductible on your heloc interest if used for investments
 

Cargren

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QUOTE (Apri1 @ Jul 7 2010, 07:58 PM) Hello all,
It is time for me to get a mortgage for our new residence.
I was searching through this forum, and could not find an answer to my question.
I have two options:

1. I will use all the cash I have for a downpayment. At the same time I will apply for a secured line of credit. I will use this LOC as a downpayment for my first RE investment.
I think my TDS ratio will be better in this case. I can also deduct taxes on interest portion of LOC if I use it.

2. I will put only 20% down and use the rest to invest.

Which option is better an why?
Would be great if you can recommend a sophisticated mortgage broker in GTA.

Thank you.

I would go with 1. Use all the cash you can for a down payment, and get a secured LOC for the difference up to 80% LTV. Then use this LOC for investing only
! The interest on your LOC used for investing is now tax deductible. Plus you have reduced the non-deductible interest on your personal mortgage. Make sure you get a matrix type mortgage where the mortgage and LOC are linked. As you pay down the personal mortgage the limit on the LOC increases.
 

Thomas Beyer

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Apri1

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Thank you guys.
Thomas, I did not think about #3, interesting option. I think secured LOC without mortgage will cost more for me though.
 

MonteDobson

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QUOTE (Apri1 @ Jul 8 2010, 09:03 PM)
I think secured LOC without mortgage will cost more for me though.


Yes, LOC's are currently prime + 1. If you take a variable rate matrix type mortgage, you should be able to get prime-0.6ish, and then prime + 1 on the LOC... only when you use it.



I would take a variable with LOC option (ie. STEP, Manulife, Matrix etc). Then make payments as if you had a 5 year fixed, or somewhere around 4%. You will pay the principal down quickly and increase your available LOC with every payment. Also, the interest paid on the LOC portion, if used for investment purposes, is fully tax deductible.



Nice thing about a LOC is that you only need to make interest only payments and they are super flexible. But with a mortgage, you are "forced" to pay down principal each and every month!
 

Thomas Beyer

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QUOTE (Apri1 @ Jul 8 2010, 08:03 PM)
Thank you guys.

Thomas, I did not think about #3, interesting option. I think secured LOC without mortgage will cost more for me though.


why ?
 

PeterKinchMortgageTeam

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You forgot the most important question: Why?
What purpose do you need your real estate to produce for you? How many properties do you plan to purchase and over what time frame? the problem with quick answers out of context is that they do not take into consideration other factors. I`d strongly recommend talking to one of my PK Aproved brokers inthe GTA - contact us directly and I`ll put you in touch with one.
BTW - your question is covered in Chapter 8 in my book `The Canadian REal Estate Action Plan`
 

Apri1

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I`d like to get variable rate mortgate. It`s currently cheaper, prime - 0.6 or somethig. LOC is probably prime + .

My short term goal is to pay out mortgage for my primary residence in 3-5 years...
 

Thomas Beyer

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QUOTE (Apri1 @ Jul 9 2010, 06:31 AM)
I'd like to get variable rate mortgate. It's currently cheaper, prime - 0.6 or somethig. LOC is probably prime + .



My short term goal is to pay out mortgage for my primary residence in 3-5 years...


true .. but a LOC is more flexible, i.e. you can go up or down with your payments. With a mortgage you must pay a certain minimum amount.



There are LOC at prime available .. and soon: prime - x again due to rising prime. But yes, LOC is always slightly higher and as such not recommended for very large mortgages or higher LTV's.
 

Cargren

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QUOTE (ThomasBeyer @ Jul 9 2010, 09:10 AM)
true .. but a LOC is more flexible, i.e. you can go up or down with your payments. With a mortgage you must pay a certain minimum amount.



There are LOC at prime available .. and soon: prime - x again due to rising prime. But yes, LOC is always slightly higher and as such not recommended for very large mortgages or higher LTV's.




If you go with just the LOC you must, somehow, keep the personal home debt separate from the investing debt. This is easy with the mortgage/loc combination. Or, make sure you get an LOC that you can have multiple sub-accounts in so you can track the personal and investing debt separately in case CRA comes a calling.
 

MikeMcCrae

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Like Peter said, there are many variables and a discussion with a mortgage broker that is experienced with investors can help you work this out. You may even want to finance your own residence higher than the 80% to keep more cash free. But to explore your options sit down with a mortgage person and work it all through.
 

Apri1

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Thank you guys, your input is very helpful!
 

JimWhitelaw

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Just want to add my support to Peter`s advice - Develop your plan first, then choose the option that fits your plan. It`s easy to make quick comparisons of current rates and options, but real estate investing is a game played slowly and carefully. Think about where you need to be a few years down the road and determine the steps you`ll need to get there.
 
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