Originally Posted by Dominicwasalreadytaken
Well, I'm not an expert by any means, and I know there are far more effective strategies available than the one I use. I just do what I do because it's easy, stress free and fairly conservative.
This is how it all went down for me. Again, there are better ways to go ahead, but here's what I did.
Phoned up ATB, asked them what kind of a product they have for a HELOC. We set up a time for ATB to send an appraiser to my house to determine its worth. The value came in at 336k. My mortgage is approximately 160k. So after reviewing my credit (sparkling, btw) they decided that they could lend me 75% of 336k (252k) minus my current mortgage (162k) which worked out to be 90k. Now, the important thing to remember about HELOCs is that you only have to pay the interest on them every month. So a negative cash flow, if you have one, will not affect you, as the HELOC will just swallow it up.
So I signed the papers, became the proud owner of a 90k HELOC and went house hunting. I managed to find a great deal on a house, the purchase price was 237k. I wrote a cheque for $59,250 as a downpayment on the property. -Aside- the banks don't seem to like giving mortgages for second properties if you can't put 25% down on the purchase. And assumables are not what they used to be, so it's hard to get away from putting 25% down as a downpayment.
Anyways, as far as that one house is concerned, I signed a mortgage with Scotia for the amount of $177,750, and have a balance on my HELOC of about 62k (there were lawyer fees, renovations, etc involved). Scotia takes each monthly mortgage payment directly out of my HELOC, and the rent money I take in goes directly into my HELOC.
The rent money does not completely cover the mortgage plus the interest on the HELOC, so my HELOC increases by about $150 every month. At the same time, though, my mortgage decreases by a couple hundred every month, so I'm getting ahead on the mortgage (barely).
So, in the end, I've got a mortgage and a HELOC tied into that house, but they take care of each other, so that my personal finances are not affected whatsoever.
I've done another deal since that first house, but getting into that will just confuse the issue. The above is the easy, stress-free way of doing it.
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