Author Topic: Converting Home Equity to Debt Payment? Measured risk, or smack in the head?  (Read 1024 times)

Learner

  • 5 O'Clock Shadow
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  • Posts: 92
  • Location: Kingston, Ontario
Curious to hear your thoughts (summary at bottom). We're moving shortly to another province (we're in Canada). The house is appraised at about $195k, with the renos completed (I still have a below grade bedroom to finish). I'm using a planning estimate of $185k. We have about $122k on the mortgage remaining.

We're pretty flexible for choosing in the new location. Main location criteria is distance to work (for biking), with other factors being libraries, groceries. One consideration is potential resale, as we typically get 3-4 months to sell our house when work tells us to move.

The new location is a buyer's market current, with no short-mid term improvement anticipated. Unknown for long-term. This is one reason why the duplex interests me, since the rental vacany rate is around 2% for the city, so I think it would be relatively easy to rent out. I haven't done property management yet, so I know I have a lot of reading to do. If I go the duplex route, I would need to hire a PM for at least some of the time, certainly when I move away again. That being said, my dad who lives about 1 hr from there is considering starting his own PM company.

One risk I see with the equity conversion is potentially not having enough for at least 20% down when we move again, but I think this is extremely low risk.  There aren't many spots in Canada (that I would go) that has housing expensive beyond that.

Short version below.

Finances:
Estimated equity after sale: $63k
Student loans: $28.2k at 5.50%, 3.9k at 0.0%
Car loan: $11.5k at 4.99%
Line of Credit: $29.8k at 5.64%

New housing:
Single family home up to $175k with 20% ($35k) down, or owner-occupied duplex up to $250k, with intention of renting both halves when we move from there in 3 (likely) or more years. Rough 2-bdrm rent in new location is about $850-1000/month.

Question:
How would you allocate down payment / paying off debt? Currently looking at mix of: pay off student loans, 20% down payment, switch LOC to secured LOC to reduce interest to about 3%. This assumes the single family home option.