Q: I own a house worth about $830,000.00
I am in the last 2 years of my mortgage and owe about $40,000.00
I owe about $65,000.00 on a secured line of credit and about $20,000.00 on a credit card
I plan on doing about $200,000.00 in renovations this year
I am not sure if I should increase my line of credit to include the credit card and the cost of renovations or
remortgage. Right now I am paying just about all principal on the mortgageGeoffrey

 

A: Hi Geoffrey,

Usually when borrowing large sums of money and for an extended period of time, it makes more sense to borrow these on a mortgage instead of a Line of Credit. Here are the pro’s for each:

Line of Credit:

– Interest only payments

– Open, so can be paid off at any time

– Only pay for the amount you are borrowing at any time

 

Mortgage:

– Lower interest rate

– Part of the payments are principal (currently around 50% of your payment will go towards principal!)

 

A Line of Credit is usually priced at around Prime +.5% (3.35%) and most major banks are Prime -.6% on a mortgage (2.25%) so you would be saving around $2,000 per year in interest costs by putting this on a mortgage. However, you may wish to set it up so that you have a larger line of credit to utilize until you have finished all the work, so you don’t pay interest for the entire $200,000 right away (like you would on a mortgage) and just make sure you have the right product that would allow for you to “lock in” that portion once the renovations have completed.

It definitely makes sense to roll in the credit card debts at this time as well.

Assuming you qualify, you can borrow up to 80% of the property value on mortgage and LoC portions and some lenders allow you to have multiple mortgage+LOC portions inside of the product, so this would probably be our advise.

Please contact me personally to learn more about what options you may have and what kind of products you would qualify for. 778-373-5441 or Kyle@GreenMortgageTeam.ca.

Thanks!