3 Apr


Debt Consolidation

Posted by: Tracy Luciani Price

Think you own your home free and clear and without a mortgage? If you have a Secured Line of Credit (SLOC) also known as a Home Equity Line of Credit (HELOC), think again. SLOCs/HELOCs are registered against your property, just like a mortgage. However, unlike a standard mortgage, you’re typically only required to pay the interest every month, and thus the principal never decreases.

Rates on HELOCs are always variable rates at a minimum of Prime + 0.50% and often Prime + 1.00% + (4.45% as of today). If you know you are going to max out your line of credit or carry a balance long-term, you are doing yourself a disservice. A Variable Rate Mortgage (VRM) can be as low as Prime – 0.95% (2.5% as of today). We can look at transferring your HELOC to a VRM, saving you oodles of money and paying it down faster. Contact us today for a consultation.

We see it often. Young homebuyers are forced to need co-signers due to stringent qualification rules. They often turn to parents who are happy to help, only to find out a high-balance HELOC prevents them from doing so.

First time homebuyers Joanne and Jordan had diligently saved 20% for the down payment on their first home (this used to be the magic number for max borrowing power). However with the new qualification rules, they needed a co-signer to afford the home they wanted. Jordan’s parents seemed to be ideal co-signers but it turned out they had a $200,000 HELOC. Their minimum required interest-only monthly payments were only $652.98 however mortgage qualification rules force us to input a payment of $2500/month (1.25% of the balance). This meant they could not co-sign. We were able to switch them into a mortgage at 0.95% below Prime with a reasonable monthly payment, enabling them to co-sign and pay down this debt much more quickly.

We also see retired people on fixed income thinking they’re mortgage free, but saddled with large balance HELOCs, barely able to keep up with monthly payments. Contact us about the possibility of a reverse mortgage. You could be free and clear of payments for the rest of your life!

To re-cap, here are the pitfalls of a Line of Credit secured against your property:

  1. Higher Variable interest rates than standard mortgages
  2. Interest-only payments, never paying down principal
  3. Maxed out balances hurt credit scores
  4. Restricts ability to co-sign and to purchase other properties
  5. Rates and terms can change at any time *always read the fine print

We are consumer advocates and advise the best solutions for your individual needs. Contact us today, we can help.


Written by Jennifer Price

7 Feb


Debt Consolidation

Posted by: Tracy Luciani Price

With some pride when we do the initial analysis client announces I only have $120,000 mortgage. With a house worth $450,000, the client is almost giddy with excitement that their mortgage is almost gone. But hey wait a minute, with credit pulled the client also owes $90,000 on a line of credit and it’s maxed. This line of credit is a 2nd mortgage against the property.

Oh and there is a $30,000 Visa, also maxed. Guess what? Under the terms of their bank collateral mortgage this is also now all secured. They thought it was unsecured because the bank (not surprisingly) never told them. Yep even the car loan for $35,000 with the same bank also now secured.

So you see the clients have actually not paid down a cent over the past five years because they actually increased the amount owed in both secured and unsecured debt. This is all an illusion made for Canadians to believe ‘they are paying their mortgage off faster’.

Now, of course, the mortgage was originally negotiated at a decent rate, so the homeowners are under the impression they are actually got an amazing deal. But on further examination, the mortgage is at 2.79%, the line of credit is at 3.2%, the Visa is at 18% and the car loan is at 12%. So that mortgage is actually costing around 6%. But worse yet all disposable income is gone with payments.

Now with all eggs in one bank basket, unsecured debt is now secured under the terms of the mortgage, so the visa is now technically part of the mortgage debt. The bank registered 125% of the property value as a mortgage against your home.

Remember it’s the bank’s goal to have you take 5 credit avenues; a mortgage, line of credit, 2 visas and a car loan in order to get you in just enough debt that you are just treading above water and most of your pay cheque is eaten by payments and interest. The bank extends just enough rope so you are dangling but not dead. Dying is not good but choking is okay. And now they have full control over you and your life. Remember they love professional and high income earners because there is more potential for profit. We see this happen time and time again to all income levels.

Time to get wise to the bank tactics that keep you in perpetual debt. If you have a mortgage for heaven sakes pay it down for good, but not at the expense of having higher interest debt. That’s completely counter productive. Don’t believe you have a $120,000 mortgage when actually owe $275,000 and it’s all with a major bank.

Get a ‘get out of jail’ free card from us. We have shown hundreds of clients how to get out of debt forever and actually pay off their mortgage. Even if you have screwed up before, you can still win the debt game with our helpful advice. Real freedom comes when you don’t owe the bank a cent.