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Originally Posted by Agamemnon
You re-finance your existing property into a HE-LOC, take out the extra equity so that you've still left 25% of the (HE-LOC) property value in the HE-LOC. Take the rest and do whatever you like, if it happens to be $50k, put a downpayment and buy another house to rent. There are small issues that would have to be dealt with, but essentially you could easily do this.
The thing I like about the HE-LOC is this;
I won't be living in my current property in 3-4 years. Had I got a mortgage, I'd be paying $850/month mortgage, $220 condo fees/$60 property taxes, for a total of $1130/month. The issue with this is, because I know I'm selling in 3-4 years, I don't think it make sense to pay interest-heavy mortgage payments (like 90%) for 3-4 years and then sell. The equity I'll have built up that way will only be several thousand.
INSTEAD I'll get the HE-LOC, and only pay interest payments ($350), as well as condo/property taxes ($630/month grand total). This leaves me w/ around $500 a month to invest that I would have originally been committing to interest-heavy mortgage payments. So while I'm not actually building equity in the property, I AM taking the $500/month I'm saving w/ the HE-LOC and investing it into RRSP's, so I'll get a fat tax-return at the end of the year to... re-invest into RRSP's (or whatever investment vehicle you choose).
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Ag, are you saying that you don't have a mortgage at all? Just a HELOC? Interesting. How do they regulate your limit on what you can withdraw from the HELOC, since they'll only let you borrow up to 75% of the house worth? I think it makes sense as long as you owe less than 75% on your mortgage before you make the transition over to exclusively a HELOC. Also, the above is a fantastic way to do things
IF you have the ability to sock away that money. MissKat, you might not want to try this.
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If you're selling within the next few years, I figure it makes great sense. If you're in your house long-term, mortgage is probably the way to go.
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This came up in a thread a few weeks ago when someone thought about their grandparents that bought a house for 8K way back in the day. What if they only paid interest and no principal over the last 40 years? They'd only have an 8K mortgage right now, and their house could be worth as much as 500K for example. Interesting idea, although that is a lot of interest to pay if you think in today's values. Would you want to pay interest on 300K every month for the rest of your life, even if it meant your house was worth 3 million dollars in 40 years? You're probably right, it's probably better to pay down some principal as you go if you're planning on owning a house for the next 50 years.
Of course, the way interest rates are right now, every penny I put against the principal of my mortgage yeilds only a 5% ROR or so. You can make a lot more money than that right now. However, if interest rates climb to 8% or higher paying down your mortgage suddenly doesn't look like too bad of an investment. Who knows, maybe interest rates hit 20% again one day in the next 30 years. I'd rather see myself mortgage free at that point than owing the bank 300K.