Home Equity - Calgarypuck Forums - The Unofficial Calgary Flames Fan Community

Crazy Flamer · 11-03-2006, 11:20 AM

Any bankers out there?

I want to use the equity in my home to do some investing, but I don't know if I can. I bought my home in May of this year or $333,500 and put the typical 5% down. Right now similar homes in my area are going for $380,000, some even more. Let's say, for arguements sake, my house is worth $380,000.

Do I have enough equity built into that house to take a home equity line of credit? If so, how much? I also co-own the property with my girlfriend, would she have to sign off on the loan too?

Any adive you can give would be great! Thanks!

Agamemnon · 11-03-2006, 11:23 AM

I think you might need 25% equity in the place to get a HE-LOC... not sure though.

photon · 11-03-2006, 11:33 AM

Typically a home equity line of credit goes up to 75% of the value of the house... Since you are in a high ratio situation you have to have insurance. Recently CMHC and Genworth have made products available for this kind of thing though.

So in your case, you can go up to 90% of the value of your home with a line of credit. That's $342,000. Since you paid $333,500, your mortgage is $316,825 (minus what you've paid in six months). So you have access to $25,175. Minus the legal fees and maybe the appriasal. Plus I don't know if you have to repay the insurance company for their insurance or not, so that might be another few thousand.

You might want to wait a bit until you have a bit more built up before borrowing depending on what you were planning on investing in.

EDIT: Though income trusts might be fairly cheap at this point

Crazy Flamer · 11-03-2006, 11:41 AM

Quote:

Originally Posted by photon

Typically a home equity line of credit goes up to 75% of the value of the house... Since you are in a high ratio situation you have to have insurance. Recently CMHC and Genworth have made products available for this kind of thing though.

So in your case, you can go up to 90% of the value of your home with a line of credit. That's $342,000. Since you paid $333,500, your mortgage is $316,825 (minus what you've paid in six months). So you have access to $25,175. Minus the legal fees and maybe the appriasal. Plus I don't know if you have to repay the insurance company for their insurance or not, so that might be another few thousand.

You might want to wait a bit until you have a bit more built up before borrowing depending on what you were planning on investing in.

EDIT: Though income trusts might be fairly cheap at this point

Awesome! I was only looking for about 20-25G, so that amount suits me just fine. Now my question is where would I look for a person who could set such a loan up for me?

photon · 11-03-2006, 11:55 AM

I think there's a mortgage broker or two on the forum, they'd be able to help you out. Maybe do a search of old mortgage related threads.

Clarkey · 11-03-2006, 11:59 AM

http://www.calgarydreamhome.ca/

Gobsgraham · 11-03-2006, 12:04 PM

I am pretty sure that you will have to pay CMHC on the whole amount of the mortgage again (not just the difference of what you already paid). That is a pretty hefty penalty for trying to do this.

photon · 11-03-2006, 12:06 PM

Quote:

Originally Posted by Gobsgraham

I am pretty sure that you will have to pay CMHC on the whole amount of the mortgage again (not just the difference of what you already paid). That is a pretty hefty penalty for trying to do this.

Ouch! Yeah if you've got to do that then this is a lot less attractive. That'd eat up your returns on investing for a few years at least.

nfotiu · 11-03-2006, 12:06 PM

Canadian home equity interest isn't tax deductible, is it?

Make sure you take that into account when you are analyzing your investment. If you are paying 7% interest, you'd probably need to make about 10% to break even. Unless there is some way to deduct that interest as an expense, I guess.

Shazam · 11-03-2006, 12:09 PM

If you're looking for just 25K, you can just get a conventional LOC. Banks hand those things out like candy.

Sylvanfan · 11-03-2006, 12:10 PM

Quote:

Originally Posted by nfotiu

Canadian home equity interest isn't tax deductible, is it?

Make sure you take that into account when you are analyzing your investment. If you are paying 7% interest, you'd probably need to make about 10% to break even. Unless there is some way to deduct that interest as an expense, I guess.

If you use the loan to invest than I think you can write off 50% of the interest so long as you don't put the investment into registered savings.

Clarkey · 11-03-2006, 12:15 PM

Are you buying a car or something?

Crazy Flamer · 11-03-2006, 12:50 PM

Quote:

Originally Posted by Clarkey

Are you buying a car or something?

No, just want to do some investing.

And one more thing, since my girlfriend co-owns the house with me, does the old ball and chain also have to sign off on the loan?

Gobsgraham · 11-03-2006, 12:59 PM

If you are borrowing against the house she would have to be involved. If you went and got a line of credit on the side, she probably wouldn't have to be involved.

Crazy Flamer · 11-03-2006, 01:30 PM

Yeah, not that its a huge concern, she is just so conservative with money. don't worry, I can get her on board... (with borrowing the money that is)!

Mccree · 11-03-2006, 01:31 PM

Quote:

Originally Posted by Sylvanfan

If you use the loan to invest than I think you can write off 50% of the interest so long as you don't put the investment into registered savings.

you can right off 100% of any interest you pay as long as it is for investment purposes that will produce taxable income.

Fozzie_DeBear · 11-03-2006, 01:34 PM

FWIW It sounds risky dude, if you take the cost of borrowing (interest) and the transaction costs (fees, your time etc.) and take that out of the returns you could possibly make on $25k worth of investments...is it worth it?

My $0.02...get a good financial advisor and run the plan by them...they are worth their wieght in gold

Gobsgraham · 11-03-2006, 01:42 PM

If I am correct on the CMHC payment again it will cost you around $5700 for this option.

90% of $316,825 = $285,142.50 * 2% = $5702.85

photon · 11-03-2006, 01:58 PM

Quote:

Originally Posted by Fozzie_DeBear

My $0.02...get a good financial advisor and run the plan by them...they are worth their wieght in gold

Agreed.. and like someone said, a normal line of credit might be a better option.

They might come up with an even better plan as well.

photon · 11-03-2006, 02:00 PM

Quote:

Originally Posted by Gobsgraham

If I am correct on the CMHC payment again it will cost you around $5700 for this option.

90% of $316,825 = $285,142.50 * 2% = $5702.85

Double ouch! So after legal fees and everything he'd be lucky to have $18,000.