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What should I do when I renew?

D

dellison

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Oct 16, 2007
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Hi All!

I was hoping that I might get some advice on renewing my mortgage.

My mortgage is up for renewal in April. I already have a mortgage broker which I use regularily, so I am not looking for a broker (sorry).

I currently owe approximately $135K on my first mortgage at 5.14% fixed. This is the one up for renewal. I also have a HELOC (Home Equity Line of Credit) for $177K at PRIME - of which I have used $100K for investments, etc. So basically I OWE $235K in total debt, which is costing me about $1200 + $440 = $1640 per month.

My home was appraised by the bank in August at $489K (a conservative appraisal) - but considering current market conditions in my area, it would likely be fairly close now.

I am an independent contractor running my own business, and do not have enough of an income history to be able to PROVE income for certain types of products out there, but my mortgage broker has told me he can get me up to 75% of the value of my home with a new mortgage should I choose to go that route.

So here are the 2 options I am toying with:

A. Renew my mortgage at the full 75% value - $367K, variable rate (since rates are dropping) approx 4.75%, 25 yrs for a monthly payment of max $2100. I would use some of the additional money ($367K - $135K - $100K = $132K) to put aside for the additional monthly payments outside of my budget ($2100 - $1640) - approximately $460/month - since money is tight and I can`t afford this extra per month right now.
The remainder (approx $100K) I would use for investments, hoping that my investments will net me more interest per month than what my mortgage is costing me in interest. I am calculating that the interest amount of my payments are $1450/month or $17400/year. Which means that investing $100K would need to give me at least 18%/year in order to break even with this plan. Possible, but may be a bit difficult to find.

or

B. Keep my mortgage the same, and simply renew at a variable rate. Keep my existing HELOC the way it is. My payments won`t change much ,and might actually go down.

Or perhaps there is a combination of the above that would work best, such as renewing my mortgage for a higher amount ($135K + 100K = $235K) in order to pay off the HELOC. This would result in payments of $1350/month, and free up $100K more in my HELOC to be used for investments. This brings about another concern or question: Do I have to pay my HELOC at the same time I renew?

I am looking for your advice and tips that would help me to MAXIMIZE my net worth over the next 3 years or so.

Thank you in advance for your time and helpful advice!
 
QUOTE (dellison @ Mar 25 2008, 01:50 PM) Hi All!

I was hoping that I might get some advice on renewing my mortgage.

My mortgage is up for renewal in April. I already have a mortgage broker which I use regularily, so I am not looking for a broker (sorry).

I currently owe approximately $135K on my first mortgage at 5.14% fixed. This is the one up for renewal. I also have a HELOC (Home Equity Line of Credit) for $177K at PRIME - of which I have used $100K for investments, etc. So basically I OWE $235K in total debt, which is costing me about $1200 + $440 = $1640 per month.

My home was appraised by the bank in August at $489K (a conservative appraisal) - but considering current market conditions in my area, it would likely be fairly close now.

I am an independent contractor running my own business, and do not have enough of an income history to be able to PROVE income for certain types of products out there, but my mortgage broker has told me he can get me up to 75% of the value of my home with a new mortgage should I choose to go that route.

So here are the 2 options I am toying with:

A. Renew my mortgage at the full 75% value - $367K, variable rate (since rates are dropping) approx 4.75%, 25 yrs for a monthly payment of max $2100. I would use some of the additional money ($367K - $135K - $100K = $132K) to put aside for the additional monthly payments outside of my budget ($2100 - $1640) - approximately $460/month - since money is tight and I can`t afford this extra per month right now.
The remainder (approx $100K) I would use for investments, hoping that my investments will net me more interest per month than what my mortgage is costing me in interest. I am calculating that the interest amount of my payments are $1450/month or $17400/year. Which means that investing $100K would need to give me at least 18%/year in order to break even with this plan. Possible, but may be a bit difficult to find.

or

B. Keep my mortgage the same, and simply renew at a variable rate. Keep my existing HELOC the way it is. My payments won`t change much ,and might actually go down.

Or perhaps there is a combination of the above that would work best, such as renewing my mortgage for a higher amount ($135K + 100K = $235K) in order to pay off the HELOC. This would result in payments of $1350/month, and free up $100K more in my HELOC to be used for investments. This brings about another concern or question: Do I have to pay my HELOC at the same time I renew?

I am looking for your advice and tips that would help me to MAXIMIZE my net worth over the next 3 years or so.

Thank you in advance for your time and helpful advice!

If you`re comfortable with a variable rate mortgage - definately the way to go. You might want to ask your broker to check out some of the front end loaded variables. They give you a big discount at the beginning of the term, and less so later in the term when prime is forecasted to drop again. Also a great product if you think you might lock in at some point!!

As far as the product, ask your broker to look at a readvanceable mortgage . One charge gives you the ability to borrow 75% of the value of the property. The mortgage portion stays intact, and the remainder is available to you as the LOC. As you pay down the mortgage, it also becomes available. If you are looking to invest some of that LOC (using the principals of the smith manoevure) - its the only product you should be considering due to the tax benefits. Make sure your broker knows what your intentions are with the proceeds, so they know which product to reccomend.
 
QUOTE (dellison @ Mar 25 2008, 12:50 PM) Hi All!

I was hoping that I might get some advice on renewing my mortgage.

My mortgage is up for renewal in April. I already have a mortgage broker which I use regularily, so I am not looking for a broker (sorry).

I currently owe approximately $135K on my first mortgage at 5.14% fixed. This is the one up for renewal. I also have a HELOC (Home Equity Line of Credit) for $177K at PRIME - of which I have used $100K for investments, etc. So basically I OWE $235K in total debt, which is costing me about $1200 + $440 = $1640 per month.

My home was appraised by the bank in August at $489K (a conservative appraisal) - but considering current market conditions in my area, it would likely be fairly close now.

I am an independent contractor running my own business, and do not have enough of an income history to be able to PROVE income for certain types of products out there, but my mortgage broker has told me he can get me up to 75% of the value of my home with a new mortgage should I choose to go that route.

So here are the 2 options I am toying with:

A. Renew my mortgage at the full 75% value - $367K, variable rate (since rates are dropping) approx 4.75%, 25 yrs for a monthly payment of max $2100. I would use some of the additional money ($367K - $135K - $100K = $132K) to put aside for the additional monthly payments outside of my budget ($2100 - $1640) - approximately $460/month - since money is tight and I can`t afford this extra per month right now.
The remainder (approx $100K) I would use for investments, hoping that my investments will net me more interest per month than what my mortgage is costing me in interest. I am calculating that the interest amount of my payments are $1450/month or $17400/year. Which means that investing $100K would need to give me at least 18%/year in order to break even with this plan. Possible, but may be a bit difficult to find.

or

B. Keep my mortgage the same, and simply renew at a variable rate. Keep my existing HELOC the way it is. My payments won`t change much ,and might actually go down.

Or perhaps there is a combination of the above that would work best, such as renewing my mortgage for a higher amount ($135K + 100K = $235K) in order to pay off the HELOC. This would result in payments of $1350/month, and free up $100K more in my HELOC to be used for investments. This brings about another concern or question: Do I have to pay my HELOC at the same time I renew?

I am looking for your advice and tips that would help me to MAXIMIZE my net worth over the next 3 years or so.

Thank you in advance for your time and helpful advice!

Hi,

If cashflow is a concern, something you my want to consider when you refinance is a 40-year amortization period instead of 25.

John
 
QUOTE (esteyjk @ Mar 25 2008, 04:45 PM) Hi,

If cashflow is a concern, something you my want to consider when you refinance is a 40-year amortization period instead of 25.

John


Why not use a LOC instead .. as ANY pre-payment of principal is optional .. i.e. interest only if you chose to .. and if you`ve got $12,000 extra .. pay the LOC down .. and then use it if you need it ..

Why use a mortgage AT ALL if you can get a LOC at similar rates with more flexibility ?
 
Keep your principle mortgage low and variable. (Bad debt). Keep your LOC high, maxed and invested (Good debt), it is not difficult to find investments that will pay the LOC interest and put substantially more in your pocket.


As mentioned above a readvanceable mortgage available from your broker can accomplish both the above, but is not always available with a variable rate mortgage component, so you may want to keep them separate.
 
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