Mortgage or HELOC?

by Michelle
(Mississauga, ON Canada)

Should I use my Home Equity Line of Credit (at 3%) to buy the property or use it only for a downpayment and get a mortgage for the rest? I have equity but only work part-time so it may be difficult to qualify for a big mortgage.

Comments for Mortgage or HELOC?

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Nov 07, 2012
 RE: I have two HELCO
by: Tom Karadza

Hello Eugene,

Banks are strange.

On my very first unsecured line of credit I was given one interest rate and then the banker literally said, "I'm leaving this role for a new role and want to do you a favour so I'll give you a better rate.", then he dropped a full point off.

This has always lead me to believe you just have to ask and bug and poke the bank enough (not over the phone, in person at a branch) to get a lower rate.

Also, there are cycles to this.

For example, HELOC's with prime minus interest rates were common prior to the financial meltdown of 2008. Then they disappeared for a while and were prime + 1%. Then they went back to prime - .5% for a while and then that went away.

So you have to be constantly monitoring what's being offered and then ask for a better rate during one of the "good cycles" in the market where they are offering the lower rates.

The other option we've used successful is threaten to take your business elsewhere (in a polite but firm way) to see what that does. We've negotiated better rates like that as well.

Tom.
Oct 29, 2012
 Interest rate
by: Eugene

I have two HELOC from TD Canada Trust both at 4%.It would be appreciated if you share your experience how to get 3% or less ...
Thanks
Oct 23, 2012
 RE: Mortgage or HELCO...
by: Tom Karadza

Hi,

We would say YES, do it!

However, there are a couple things to consider:

1. Don't bite off more than you can chew. So make sure you can handle the increased carrying costs, you don't want to over extend yourself.

2. We would only use the equity to buy cash flow positive rental properties (and include the interest payment on your credit line as one of your expenses on the property). That way the property is paying for all the expenses and you don't have to invest into the property every month.

Lastly, most banks don't like you using credit lines as forms of down payments. So clear that up with your banker or mortgage broker before you begin.

Hope that helps!

Tom.

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