BMO and TD offering a 2.99% five year fixed

[Slava]

Originally Posted by photon

I've got 2 HELoCs at prime - 0.5%, but been thinking about converting them (they're starting to become a problem when talking to banks about borrowing), it probably won't get much better than this eh?

What kinds of issues are you running into? I've found the banks/lenders way too lenient for me, but that was about 3-4 years ago now that I think of it and outdated I guess.

[geos]

Originally Posted by photon

I've got 2 HELoCs at prime - 0.5%, but been thinking about converting them (they're starting to become a problem when talking to banks about borrowing), it probably won't get much better than this eh?

2.75% variable or 2.99% fixed for 5 years? Ummm.... is there a question there?

The only thing would be if you're planning to pay them off quick, the variable would be better obviously as you're limited to a 10% prepayment per year with the 2.99% deals. Instead of paying them off early (if you elected to go with the fixed), however, you could stash the cash in a bond or other investment until the 5 years is up and use the proceeds to pay off the mortgage then, so you do have some flexibility. It's not the end of the world.

The only way the 2.99% goes lower is if the outlook declines further. Which lets all hope it doesn't.

[photon]

Originally Posted by Slava

What kinds of issues are you running into? I've found the banks/lenders way too lenient for me, but that was about 3-4 years ago now that I think of it and outdated I guess.

They see the line of credits as revolving (which they are), so when they're doing their debt service ratio tests they use either a portion or the full available amount.. I can't remember exactly.

We were trying to refinance one of our 4plexes to pull some cash out to do some stuff with and that's one of the issues we ran into.. though I don't know if it's the biggest one, our corporate structures were also an issue as well as the # of properties.

[photon]

Originally Posted by geos

2.75% variable or 2.99% fixed for 5 years? Ummm.... is there a question there?

The only thing would be if you're planning to pay them off quick, the variable would be better obviously as you're limited to a 10% prepayment per year with the 2.99% deals. Instead of paying them off early (if you elected to go with the fixed), however, you could stash the cash in a bond or other investment until the 5 years is up and use the proceeds to pay off the mortgage then, so you do have some flexibility. It's not the end of the world.

The only way the 2.99% goes lower is if the outlook declines further. Which lets all hope it doesn't.

Yeah one's our own house and the other is an investment property which I plan to hold long term, so prepayment isn't a big issue.

I like the flexibility of the lines of credit (since we can put money in or pull it out to invest as we desire), but the past 4-5 years with things being tighter I'm finding it easier and easier to come up with reasons to do interest only payments (need the $ to do improvements, or make payments when there's vacancies, etc), so part of me wants to convert to mortgages so that the paydown happens regardless.

[geos]

Originally Posted by photon

They see the line of credits as revolving (which they are), so when they're doing their debt service ratio tests they use either a portion or the full available amount.. I can't remember exactly.

Both matter. As well, the utilization matters (if you've drawn $20k on a $50k HELOC it's more favourable than say $45k on a $50k HELOC).

You'd be surprised how much a bank will care if you have $25k on each versus $50k on one and $0k on the other. Bizarre and a weird part of their risk calculations, but it does matter. You want as low of a utilization rate on both of your HELOCs. You could have the same amount of debt, but if you've nearly maxed out any line, it's a concern for a bank.

[Slava]

Originally Posted by photon

They see the line of credits as revolving (which they are), so when they're doing their debt service ratio tests they use either a portion or the full available amount.. I can't remember exactly.

We were trying to refinance one of our 4plexes to pull some cash out to do some stuff with and that's one of the issues we ran into.. though I don't know if it's the biggest one, our corporate structures were also an issue as well as the # of properties.

Ya, I suppose its a little different everywhere. I was just thinking back to a car dealership a few years ago when the finance manager told me that they didn't count mine as a mortgage. I laughed because I definitely do, but whatever they want to call it was up to them. Obviously its a little different as they just want to move cars one way or another, but a strange position I thought.

[Slava]

Originally Posted by geos

2.75% variable or 2.99% fixed for 5 years? Ummm.... is there a question there?

The only thing would be if you're planning to pay them off quick, the variable would be better obviously as you're limited to a 10% prepayment per year with the 2.99% deals. Instead of paying them off early (if you elected to go with the fixed), however, you could stash the cash in a bond or other investment until the 5 years is up and use the proceeds to pay off the mortgage then, so you do have some flexibility. It's not the end of the world.

The only way the 2.99% goes lower is if the outlook declines further. Which lets all hope it doesn't.

Alright, just to play DA here, why take the rate increase today? When are rates going to rise? (careful...they have supposedly been ready to rise for at least 2 years or so now!)

[photon]

Originally Posted by geos

Both matter. As well, the utilization matters (if you've drawn $20k on a $50k HELOC it's more favourable than say $45k on a $50k HELOC).

You'd be surprised how much a bank will care if you have $25k on each versus $50k on one and $0k on the other. Bizarre and a weird part of their risk calculations, but it does matter. You want as low of a utilization rate on both of your HELOCs. You could have the same amount of debt, but if you've nearly maxed out any line, it's a concern for a bank.

Yeah, and both are really high in utilization because we've pulled money out of each to buy other properties.. so while the mortgages on those properties look great, the two helocs look pretty bad from that point of view.

[photon]

Originally Posted by Slava

Alright, just to play DA here, why take the rate increase today? When are rates going to rise? (careful...they have supposedly been ready to rise for at least 2 years or so now!)

Yeah, that's the thing on the other side, what are the chances that I can wait a year and still be able to get the same deal of mortgage.. I've bought myself another year of low rates by waiting.

[geos]

Originally Posted by Slava

Alright, just to play DA here, why take the rate increase today? When are rates going to rise? (careful...they have supposedly been ready to rise for at least 2 years or so now!)

No, that's a completely legitimate question. I'm one of the few financial professionals that's willing to admit I have no idea where rates are going... and any that tell you are crazy, especially in today's economy.

I can tell you they aren't going to go down much, the overnight rate is near 0%, can't go negative. So the floor is pretty much set. At least on the variable side.

Five years is a long time and when rates increase, they can do so very quickly. The way I see the 0.25% extra is that it's a small price to play for a lot of risk aversion.

If you want to roll the dice, by all means go ahead and do so. But just be aware of the risks. And understand that paying an extra 0.25% for certainty for five years may be a small price to pay for some extra sleep at night.

[albertGQ]

Originally Posted by geos

2.75% variable or 2.99% fixed for 5 years? Ummm.... is there a question there?

The only thing would be if you're planning to pay them off quick, the variable would be better obviously as you're limited to a 10% prepayment per year with the 2.99% deals. Instead of paying them off early (if you elected to go with the fixed), however, you could stash the cash in a bond or other investment until the 5 years is up and use the proceeds to pay off the mortgage then, so you do have some flexibility. It's not the end of the world.

The only way the 2.99% goes lower is if the outlook declines further. Which lets all hope it doesn't.

Prime is at 3% so the rate is actually at 2.50%.
I'd rather keep this then go to the 2.99% five year term

[albertGQ]

Originally Posted by photon

I've got 2 HELoCs at prime - 0.5%, but been thinking about converting them (they're starting to become a problem when talking to banks about borrowing), it probably won't get much better than this eh?

The five year term probably won't get lower but whats what everyone thought last year when ATB ha their 3.09% five year term promo.

I'd rather keep the P-0.50% though. You won't be getting anything with prime minus nowadays

[geos]

Originally Posted by albertGQ

Prime is at 3% so the rate is actually at 2.50%.
I'd rather keep this then go to the 2.99% five year term

I'm pretty sure he said his HELOC was prime? Oh well, so it's 0.50% savings.

It's not a matter of right and wrong, it's a matter of risk tolerance. That's my overall point. If you can afford the risk, then take it. But be honest with yourself.

[albertGQ]

Originally Posted by geos

Restrictions are a 25 year term only and only 10% prepayment ability.

Not too bad unless you need the 30 year... which means you probably are stretching beyond means. The difference between 30 year and 25 year on a $200k mortgage is $100/mn. No biggy. Not for a 0.50% break on the rate.

The scary thing is when inflation exceeds the 5 year fixed mortgage rate... well... it's generally a sign you're deep in some stagflation depression. Japan's lost decade style.

That's not bad at all. On a small $200k mortgage, that's still $20,000 you are able to prepay every year for five years. Plus, I'm sure you'll be able to increase your monthly mortgage payments

[photon]

Originally Posted by albertGQ

The five year term probably won't get lower but whats what everyone thought last year when ATB ha their 3.09% five year term promo.

I'd rather keep the P-0.50% though. You won't be getting anything with prime minus nowadays

True, and yeah that's the other reason I want to keep them; they're like collectors items

[Slava]

Originally Posted by geos

No, that's a completely legitimate question. I'm one of the few financial professionals that's willing to admit I have no idea where rates are going... and any that tell you are crazy, especially in today's economy.

I can tell you they aren't going to go down much, the overnight rate is near 0%, can't go negative. So the floor is pretty much set. At least on the variable side.

Five years is a long time and when rates increase, they can do so very quickly. The way I see the 0.25% extra is that it's a small price to play for a lot of risk aversion.

If you want to roll the dice, by all means go ahead and do so. But just be aware of the risks. And understand that paying an extra 0.25% for certainty for five years may be a small price to pay for some extra sleep at night.

I don't predict rates either, and I wouldn't say that is a rarity in the industry at all actually. I think everyome agrees rates will go up, but its a question of when and how much. The reality is that rates usually (not always lf course) move a quarter point at a time. On that same $300k mortgage I talked about before its about $20/month. Saving $20 is always nice, but if thats a make it or break it thing for you then its safe to say you should be doing something now to protect yourself!

I also think that the flexibility afforded by the HELOC is a huge factor for a lot of people. Its not really an apples to apples comparison in a lot of ways.

[Swayze11]

damn, I got the 4 year 2.99%.... wish I waited a couple more months.

[squiggs96]

Originally Posted by photon

I've got 2 HELoCs at prime - 0.5%, but been thinking about converting them (they're starting to become a problem when talking to banks about borrowing), it probably won't get much better than this eh?

Instead of having a chequing account, savings account and a mortgage, I just have an All in One account with NBC. I use it basically as a bank account with a huge overdraft function that is secured by my house. The credit limit is the amount advanced to me to finance my house and is 75% of the original purchase price. It works for me because my pay cheques and deposits go directly against the balance outstanding and I minimize the total interest.

Where I've run into problems with the banks is when I bought a rental condo. I wrote a cheque from the account for $75,000. TD didn't like it because they said I was borrowing the down payment. I sort of was, and for tax purposes I definitely am so I can write off the interest, but I didn't see it as truly borrowing. I had paid off $200,000 of the principal over the last three years and was using some of this money to buy the rental condo. They wanted to see me take that money out of the All in One account and move to to a true bank/savings account. I said that was dumb as it would cost me $6.16 ($75,000 * prime / 365) in daily interest to have it in a separate account. After explaining it to the mortgage rep for about half an hour he finally understood what I was doing. It took a while, but he finally got that I had no obligations to pay down principal on my house (must pay interest monthly), but had paid down $200,000.

As long as they understand this in the end I'm happy, but I can't be the only one doing this. If structures are more complex and have different setups for tax purposes, I wish they'd bring in a colleague or higher up who can more readily understand what is happening.

[Slava]

Originally Posted by squiggs96

Instead of having a chequing account, savings account and a mortgage, I just have an All in One account with NBC. I use it basically as a bank account with a huge overdraft function that is secured by my house. The credit limit is the amount advanced to me to finance my house and is 75% of the original purchase price. It works for me because my pay cheques and deposits go directly against the balance outstanding and I minimize the total interest.

Where I've run into problems with the banks is when I bought a rental condo. I wrote a cheque from the account for $75,000. TD didn't like it because they said I was borrowing the down payment. I sort of was, and for tax purposes I definitely am so I can write off the interest, but I didn't see it as truly borrowing. I had paid off $200,000 of the principal over the last three years and was using some of this money to buy the rental condo. They wanted to see me take that money out of the All in One account and move to to a true bank/savings account. I said that was dumb as it would cost me $6.16 ($75,000 * prime / 365) in daily interest to have it in a separate account. After explaining it to the mortgage rep for about half an hour he finally understood what I was doing. It took a while, but he finally got that I had no obligations to pay down principal on my house (must pay interest monthly), but had paid down $200,000.

As long as they understand this in the end I'm happy, but I can't be the only one doing this. If structures are more complex and have different setups for tax purposes, I wish they'd bring in a colleague or higher up who can more readily understand what is happening.

I have a similar set-up but through Manulife and use it similarly. I think its more common than it was a few years back, but you do run into people who just don't understand how it works.

[Radio]

^^Count me as someone who doesn't completely understand but is intrigued.