TD Bank just announced that they are increasing the Home Equity Line of Credit interest rate to Prime plus 1 %from the current Prime rate. Rob Carrick of the Globe and Mail wrote an article you can fine here about the issue.
What does this mean for your mortgage?
If you have a large balance on your Line of Credit and cannot pay it down, it may be worth looking into adding that balance to a variable rate mortgage.
There are two potential benefits to this. First of all the rise in the HELOC rates are acting in opposition to the downward trend of variable rates in the market. Just recently ResMor a broker only lender began offering a 4 year variable at Prime 2.25%. Some industry leaders suggest that we are maybe a month away from seeing a Prime minus variable product on the market.
By converting your HELOC into a variable you still get the variable product, but at a lower rate than the Prime plus 1% that was just announced.
A second consideration is that interest on mortgages is generally compounded semi-annually, whereas Lines of Credit are typically compounded monthly.
Thereforeyour savings are twofold - you get the benefit of a lower variable rate and save some added money by having your interest compounded semi-annually instead of monthly.
Something to consider.
John Shearer
Wednesday, September 23, 2009
Wednesday, September 9, 2009
A Real Life Debt Consolidation
Debt consolidation can be extremely beneficial for any homeowner who has debts that may be at high interest rates, an assortment of varying balances between debts or plain and simple , a lot of debt.
Often homeowners have equity in their home which is not being used and is sitting idle. Meanwhile homeowners are being burdened with heavy debt loads and high interest rates.
Below is an example of a couple who used the equity in their home to their advantage and as a result realized huge savings.
Jim and Nancy have a house they purchased 9 years ago. During this time they have taken out a line of credit to do renovations on the home. They also have two credit cards whose balances need to be paid monthly as well as a car loan.
Their monthly debts look something like this:
Mortgage:
(25 year amortization)
$200,000
Monthly Payment $1169
Credit Cards
(18% Interest)
$8000 Balance
Monthly Payments: $250
Line Of Credit
(8% Interest)
$20,000 Balance
Monthly Payment: $130
Car Loan
(5% Interest)
$14,000 Balance
Monthly Payment $540
Total Debt: $242,000
Total Monthly Payments: $2,089
In this scenario Jim and Nancy increased their mortgage from $200,000 to $242,000. They paid out their high interest debts and had only a single monthly debt to worry about.
By increasing their mortgage from $200,000 to $242,000 the monthly payment went from$1169 to $1,407 which is only an increase of $238 per month.
What are the Benefits to Jim and Nancy?
As a result of consolidating their debt their five monthly payments have been cut down to a single monthly obligation.
By paying out the high interest items Jim and Nancy’s interest cost has been reduced dramatically.
Most importantly for them though is that they now have an opportunity to save thousands of dollars.
The most interesting part of this scenario comes when we increase the mortgage payment. Jim and Nancy have a mortgage payment of $1,407. If we increase that payment to the $2,089 that they were already used to paying it would have a significant impact for them.
By simply increasing the mortgage payment to $2,089 the mortgage amortization falls from 25 years to 13 years.
This creates an interest savings of over $90,000!!
By decreasing the amortization from 25 years to 13 years the interest component on the mortgage is greatly decreased.
Now if Jack were to save $1,407 per month for the 12 years that he would have been paying his mortgage he would accumulate $278,846 at a rate of 5%.
To discuss how you can use the equity in your home please contact me.
Often homeowners have equity in their home which is not being used and is sitting idle. Meanwhile homeowners are being burdened with heavy debt loads and high interest rates.
Below is an example of a couple who used the equity in their home to their advantage and as a result realized huge savings.
Jim and Nancy have a house they purchased 9 years ago. During this time they have taken out a line of credit to do renovations on the home. They also have two credit cards whose balances need to be paid monthly as well as a car loan.
Their monthly debts look something like this:
Mortgage:
(25 year amortization)
$200,000
Monthly Payment $1169
Credit Cards
(18% Interest)
$8000 Balance
Monthly Payments: $250
Line Of Credit
(8% Interest)
$20,000 Balance
Monthly Payment: $130
Car Loan
(5% Interest)
$14,000 Balance
Monthly Payment $540
Total Debt: $242,000
Total Monthly Payments: $2,089
In this scenario Jim and Nancy increased their mortgage from $200,000 to $242,000. They paid out their high interest debts and had only a single monthly debt to worry about.
By increasing their mortgage from $200,000 to $242,000 the monthly payment went from$1169 to $1,407 which is only an increase of $238 per month.
What are the Benefits to Jim and Nancy?
As a result of consolidating their debt their five monthly payments have been cut down to a single monthly obligation.
By paying out the high interest items Jim and Nancy’s interest cost has been reduced dramatically.
Most importantly for them though is that they now have an opportunity to save thousands of dollars.
The most interesting part of this scenario comes when we increase the mortgage payment. Jim and Nancy have a mortgage payment of $1,407. If we increase that payment to the $2,089 that they were already used to paying it would have a significant impact for them.
By simply increasing the mortgage payment to $2,089 the mortgage amortization falls from 25 years to 13 years.
This creates an interest savings of over $90,000!!
By decreasing the amortization from 25 years to 13 years the interest component on the mortgage is greatly decreased.
Now if Jack were to save $1,407 per month for the 12 years that he would have been paying his mortgage he would accumulate $278,846 at a rate of 5%.
To discuss how you can use the equity in your home please contact me.
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