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Financing, Mortgages and Insurance What options are best for you and your situation?


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Old 2012-01-13, 02:57 PM
Mark & Lynda Mark & Lynda is offline
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Question for the financial experts.

Would we be better off putting lump sum payments down on our mortgage OR paying down a Line of credit?

We have a yearly 10% prepayment privilege on the mortgage. The interest rate is Prime Minus. The Line is secured and is Prime +1.

Where do I get the most benefit?
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Old 2012-01-13, 03:16 PM
hellokittygirl hellokittygirl is offline
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Although the principle amount on your house is larger than the debt on the LoC, the general "rule" is to pay down the debt that has the highest interest rate.

With that being said, you may also want to balance debt repayment with paying some towards your mortgage and some towards the LoC (depending how much you want to contribute to the total of each).

Last edited by hellokittygirl; 2012-01-13 at 03:19 PM.
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Old 2012-01-13, 03:50 PM
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Not sure what bank your with but both TD and Scotia Bank have a pretty good online mortgage calculator that allows you to input extra payments. You can punch in your numbers and see if you like the results.
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Old 2012-01-13, 05:45 PM
oakvillehomeowner oakvillehomeowner is offline
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is this a real question?

pay down the highest interest rate first, unless you have some spending discipline issues and will just build your LOC back up.

if you're worried that you'll miss out on mortgage prepayment room, that only matters if you're going to have enough excess cash to pay off the entire LOC and then pay down the mortgage.

pay down the LOC until it's fully paid off and then pay down the mortgage.
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Old 2012-01-13, 08:53 PM
copper copper is offline
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I disagree,
Paying down the highest interest rate makes sense if your term is the same. Paying a lump sum of say 10K in your first year or 2 of your mortgage will give you continued savings over the life of your mortgage as more of your monthly payment goes towards principle.
We balance any lump sums we have between both, its really up to you and your comfort level.The idea of paying the highest off first and then putting eveything against your mortgage works for some, but life can get in the way.
As Brian suggested, play with the calculators and see what works for you, but keep in mind that you have a low interst rate on your mortgage and line of credit, you can bet that your mortgage rate won't be this low for the life of your mortgage..
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Originally Posted by oakvillehomeowner View Post
is this a real question?

pay down the highest interest rate first, unless you have some spending discipline issues and will just build your LOC back up.
.

Last edited by copper; 2012-01-13 at 09:04 PM.
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Old 2012-01-13, 10:06 PM
Yume Yume is offline
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That's my line of thinking as well. If it was a huge difference, ie credit card vs. mortgage, it would be one thing. Particularly if you have a fixed mortgage, it may be better to pay down the mortgage.

As BrianT said, play with the calculators (ING has a nice one, too.).

Or you can do like Solomon and split the baby down the middle: half goes to mortgage, half to line of credit.
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Old 2012-01-13, 11:07 PM
Mark & Lynda Mark & Lynda is offline
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Thanks for the replies.

Hence the reason for my question. I don't believe it's a simple straight forward answer when I'm comparing a mortgage which is double the amount of the Line.

Also taking into consideration the mortgage is compounded semi-annually and the Line is compounded monthly, that has to be taken into account...I think?

I'm taking a 5 year look at it. Canadamortgage.com has a good schedule mortgage calculator but I've had trouble finding a site to calculate the LOC interest costs after 5 years using a payment amount I specify, compounded monthly. Most are for loans that assume the balance will be zero at 5 years.
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Old 2012-01-14, 12:22 AM
lex_rx lex_rx is offline
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Always pay down higher interest first. Potentially better, is "maximize" RRSP, receive tax refund, pay down highest interest first, then mortgage if there's left over.

I usually like to buy the tax software before the deadline for RRSP so that you can do "what if" scenarios.

And, you are right, you have to take into account compounding in your calculation.
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Old 2012-01-14, 06:26 PM
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Quote:
Originally Posted by copper View Post
I disagree,
Paying down the highest interest rate makes sense if your term is the same. Paying a lump sum of say 10K in your first year or 2 of your mortgage will give you continued savings over the life of your mortgage as more of your monthly payment goes towards principle.
We balance any lump sums we have between both, its really up to you and your comfort level.The idea of paying the highest off first and then putting eveything against your mortgage works for some, but life can get in the way.
As Brian suggested, play with the calculators and see what works for you, but keep in mind that you have a low interst rate on your mortgage and line of credit, you can bet that your mortgage rate won't be this low for the life of your mortgage..
No, pay down the highest rate first even if it is shorter term.
You can direct the money that you saved after you are finished paying off the LOC to the mortgage.

Always pay off higher interest first.
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Old 2012-01-14, 06:33 PM
bcpl bcpl is offline
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Quote:
Originally Posted by copper View Post
I disagree,
Paying down the highest interest rate makes sense if your term is the same. Paying a lump sum of say 10K in your first year or 2 of your mortgage will give you continued savings over the life of your mortgage as more of your monthly payment goes towards principle.
We balance any lump sums we have between both, its really up to you and your comfort level.The idea of paying the highest off first and then putting eveything against your mortgage works for some, but life can get in the way.
As Brian suggested, play with the calculators and see what works for you, but keep in mind that you have a low interst rate on your mortgage and line of credit, you can bet that your mortgage rate won't be this low for the life of your mortgage..
The only factor that should be considered other than interest rate is the frequency of compounding. As the LoC is compunded more frequently, that is even more of a reason to pay that off first.

After you pay off the higher interest rate item, you can direct the money that you saved in interest payment toward the other item.
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