Author Topic: would you:  (Read 1597 times)

snacky

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would you:
« on: February 05, 2016, 02:47:52 PM »
I currently have:
a mortgage of $16,000 (4%)
a personal loan of $7,000 (8%)
$32,000 of available space in my TFSA, which is my investment account.

I could re-mortgage at 2.64% with a five year mortgage, pay off the debts and max out the investment account. This would reduce interest and maximize the time my money is invested, ultimately resulting in better long term outcomes.

To do so would cost me $700 in penalties for ending my original mortgage early.

The alternative is waiting until april 2017, when the term on the current mortgage is up, and I can pay it off using a HELOC (currently at 3.5%, but who knows what it will be next year)

would you?

AlwaysLearningToSave

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Re: would you:
« Reply #1 on: February 05, 2016, 03:11:43 PM »
If I'm understanding you correctly, you want to refinance your mortgage and use the refinanced loan to pay off the personal loan, resulting in one mortgage loan in the amount of $23,000 at 2.64% for five years.  Did I get that right?

Assuming I got that right, it seems like its a good idea in theory to do the refinance, pay the minimum on the resulting mortgage, and max out your investments.  It's probably a safe bet that your investment returns would exceed the 2.64% interest you pay on the loan.  But... the biggest question mark I have is in the cost of the refinance.  Closing costs, including appraisal fees, recording fees, closing agent fees, attorney's fees, etc., as well as the early termination fee could be more than you would save in interest. 

You need to find out what the closing costs would be and run some numbers to see if the interest savings are worth the costs.  You might be better off paying the minimum on the 4% mortgage, throwing everything at the 8% personal loan to pay it off ASAP (a guaranteed 8% return is probably more than you can count on in your investment account), and then max your TFSA when the personal loan is paid off.  But we can't really help you figure out what would be best without more information.

Prairie Stash

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Re: would you:
« Reply #2 on: February 05, 2016, 04:06:29 PM »
Why not get a 2nd mortgage for the $32K and roll the $7K onto it? Since you're Canadian it makes a difference, TFSA is the clue.
With RBC I was allowed 5 mortgages on my house.
Mortgage 1 can be 16K at 4% for one more year then reduced (it makes sense to wait)
Mortgage 2 is a 5 year term at 2.64% on the $39K.

Alternately I used the RBC prepayment strategy to pay off my loan. It was 10% lump sum of the original loan that I could prepay once/year. So a $180,000 loan you can lump $18K and wipe out the loan without penalty (I did precisely that). Most of the major banks allow the same deal, some have 20%.

RBC also has the double up feature, what are your loans prepayment options? What bank is your loan with now?