Author Topic: Le Barbu case study  (Read 12058 times)

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Le Barbu case study
« on: October 26, 2015, 02:06:29 PM »
Hi all, I'll start my own case study to be challenged about my actual situation and plans from now on. Being from Québec, Canada, my finances (investments, mortgage and income) are treated accordingly (taxes, registered accounts etc).

I have always been quite frugal and not to bad at math$ but discovered MMM only 2 years ago (I was like 7/10 and now 9/10). Actualy, we could shave our expenses by another few thousands/year but we reached the psychological limit of DW and prefer to focus on the Big Picture. I'll throw some numbers and useful informations to get the best feed back.

We 43-44 years old, 2 sons (8-12) and one of our priority is to stay at the same place for at least the next 10 years. Everything we need is less than 20km from our house: schools (from elementary to University), groceries, our both jobs, public services etc. We drive/bike a total of 15,000km/year including our daily comute, vacations and our both sons hockey games and practices. In fact, my job is 20km from home and everything else is less than 5km. We own 2 cars, a 2006 Civic and a 2010 Forester. I do 90% of car maintenance and repairs by myself.  Our cars are going strong (good maintenance and reliable models) and there is no need to replace any of them anytime soon. House is pretty new, meet our needs, 1,400 sq.ft. in a nice neighborhood, close to many public parks and playgrounds, low maintenance, energy efficient.

Biggest changes we made since I discovered MMM:

1-We changed our driving habits (-25%km) and bike more (+1,000km)
2-We increased our DIY brain and mucles for a maximum badassity
3-DW work 4 days/week instead of 5 (mondays are not the same anymore!)
4-Gross income went from about 125k$ to 110k$ (less hours worked @ same hourly rate)
5-Bike a lot in neighborhood with the kids
6-Stopped sneaky lifestyle inflation
7-Cook home and brown bag more, eat out less
8-Heavy weight lifting (Starting Strenght) for health and strenght increase
9-Ditched our 2%MER RBC's mutual funds (after reading Canadian Couch Potato and Andrew Hallam blogs)
10-Ditched my bonds (I may get bonds some day when I got no more debt/leverage, investments over 1M$ and income low income)
11-Agressively attacked the mortgage

Financial picture/plan

My RRSP: 345k$ (30%VTI, 40%VBR, 30%VXUS)
DW RRSP: 180k$ (35%ZCN, 35%VTI, 30%VXUS)
RESP: 80k$ (100%RBF556, not possible to switch to ZCN without loosing Québec subsidy, long story!)
TFSAs: 0$ (82k$ room. We sold our high MER RBCs Bonds mutual funds back in 2012 when refinancing our mortgage to lower the principal)
Taxable: 96k$ (100% ZCN)
Mortgage: 54k$ @ 3.5%, renewal may 2017
HELOC @ prime, actualy 2.7%: 96k$
House: 340k$ (market value)
Total assets: 1041k$
Total liabilities: 150k$ (liabilities/total assets 14%) no car loan since 2004
NW: 891k$
Life insurances 500k$ (term) for 250$/year (each)
Disability insurances, check
Cars and home insurances pretty low (high deductibles, few claims)

Investments average MER is 0.15% and about 35% is Canadian stocks, 45%US stocks (25%VTI, 20%Small Cap Value) and 20% is Int. stocks. We dont own bonds anymore. We did not panic in any off the dips since 1999 and for me, it makes no sense to hold bonds while having a mortgage or a HELOC. I usualy trade once a year in every account to max it out and buy the lagging asset to get as close as I can to the target %. I implemented a version of the Smith Maneuvre with the HELOC and bought 5,000 units of ZCN. On the long run (10-15 years) the advantage should be the yearly cashflow (3% dividends) and the capital gain should offset the interest (capitalized).

Now our mortgage is close to 50k$ and the regular payment schedual makes it ends by may 2019 (44 months). I plan to renew in may 2017 with a balance close to 30k$ and get the lowest rate available (variable, 1 or 2 years) for the remaining amortization. If rates are still damn low, I may extend the schedual for a better cashflow.

Actualy, we stash 40% of our take home pay. Gross is 110k$, net is 90k$ (18% taxes). 15k$/year goes to RRSPs, 5k$ to the RESP and 16k$ toward mortgage pricipal. The checking account is always between 8-12k$ and DW has 8k$ in a HISA @ 0.5%. We could transfert 10k$ in her TFSA and buy ZCN to get this money work for us instaed of sitting still.

There is 70k$ available on ou HELOC so I plan to get another 3,000 units of ZCN for about 56k$ (today's price) but the transaction would only occur at the beginning of 2016 (after the december dividend and before march ex. div. date). The reason is to simplify the tax calculation and also gives you few months to comments the idea. After this trade, I can capitalize the interests for at least 15 years with actual low rates and for about 10 years @ 5% interest rate without affecting my cashflow. The dividend income and tax return from this is enough to fill one of the TFSA every year.

With conservatives assumptions, our cashflow for the next 3-4 years allows us to continue maxing out our RRSPs, RESP and catch up the TFSA room while killing softly the mortgage. Our leverage would increase from 14% to 18% for year #1 but then decrease +/-1% per year afterward. To stay as close as possible from our target A.A. we may sell some ZCN from DW RRSP and buy more VTI. Only 1 Norberts-Gambit and voilà!

We want to be FI ASAP, keep our actual jobs for few more years (not intend to start a side gig or step in the actual crazy real estate market) stay healthy and then travel frugaly and keep being active. This year, I negociate 1 more holliday week instaed of an increase and plan to do the same next year. With my 80k$ income (gross) I value more few more days of than few more $$$ @ 38% marginal tax rate.

Now I'm waiting for your feed back/questions, comments
 







Kashmani

  • Stubble
  • **
  • Posts: 144
Re: Le Barbu case study
« Reply #1 on: October 26, 2015, 04:30:16 PM »
You asked for feedback, not useful feedback. Accordingly, in no particular order:

1) Yup, you've got your sh** together.

2) Sometimes I wish I had a spouse who worked. Those RRSP balances are awesome. Five years ago, when a partner whined how much more money those with working spouses made, I vowed to never whine. Now you made me whine.

3) Think long and hard whether borrowing to invest is really worth it. You already have more money in RRSPs than your house is worth, so that HELOC to index fund maneuver strikes me as unnecessarily risky.

4) There is no excuse to pay more than prime for a mortgage. With your net worth, you should be able to get a variable rate mortgage for at least prime minus 0.6. And statistically, in 76% of cases homeowners are better off with a variable rate mortgage. I would kiss your bank goodbye in 2017.

Retire-Canada

  • Walrus Stache
  • *******
  • Posts: 6728
Re: Le Barbu case study
« Reply #2 on: October 26, 2015, 04:35:27 PM »

4) There is no excuse to pay more than prime for a mortgage. With your net worth, you should be able to get a variable rate mortgage for at least prime minus 0.6. And statistically, in 76% of cases homeowners are better off with a variable rate mortgage. I would kiss your bank goodbye in 2017.

+1 - definitely prime - 0.75% shouldn't be hard to get

TrMama

  • Magnum Stache
  • ******
  • Posts: 3093
Re: Le Barbu case study
« Reply #3 on: October 26, 2015, 05:33:29 PM »
Have you done the math on how much it will actually cost your kids to go to university? Are you planning on keeping them in Quebec? I was under the impression that uni tuition is much lower in Quebec than elsewhere in Canada. I'd just check that you're not oversaving in RESPs.

What's the rationale for keeping so much invested in a taxable account vs maxing out the TFSA? Seems a bit backwards.

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: Le Barbu case study
« Reply #4 on: October 26, 2015, 05:37:12 PM »

4) There is no excuse to pay more than prime for a mortgage. With your net worth, you should be able to get a variable rate mortgage for at least prime minus 0.6. And statistically, in 76% of cases homeowners are better off with a variable rate mortgage. I would kiss your bank goodbye in 2017.

+1 - definitely prime - 0.75% shouldn't be hard to get

I know I could get a lower rate if I switch variable and/or switch bank. In fact, I always got variable rate until 2012. Back then, I was about to buy some private equities (small business shares) and locked my personal debt for security purposes. This project never happened (negociations aborted) but since then, mortgage shrinked and investments grew up.

I can give a try but not sure it worth to refinance (18 months to go) and I dont think I can get a better package anywhere else without fees and hassel. I'll let you know...

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: Le Barbu case study
« Reply #5 on: October 26, 2015, 05:51:59 PM »
Have you done the math on how much it will actually cost your kids to go to university? Are you planning on keeping them in Quebec? I was under the impression that uni tuition is much lower in Quebec than elsewhere in Canada. I'd just check that you're not oversaving in RESPs.

What's the rationale for keeping so much invested in a taxable account vs maxing out the TFSA? Seems a bit backwards.

I actualy fill the RESP to get the gov grants. As soon as they get to college, I plan to pull as much as I can without penalty and fill the TFSAs if room remain. University is cheap and they can work 4 months/year...

The taxable account is directly linked to the HELOC. Its leveraged investing so, not realy backward. It's borrowed money, the rule for interests deductibility is you must invest outside tax shelter. Called the Smith Manœuvre

Financial.Velociraptor

  • Handlebar Stache
  • *****
  • Posts: 1469
  • Age: 47
  • Location: Houston TX
  • Devour your prey raptors!
    • Financial Velociraptor
Re: Le Barbu case study
« Reply #6 on: October 26, 2015, 05:57:29 PM »
Gogogogogogogo!

I think you basically have it all wrapped up and just need to enjoy the next few years while the plan matures.

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: Le Barbu case study
« Reply #7 on: October 26, 2015, 06:13:43 PM »
Gogogogogogogo!

I think you basically have it all wrapped up and just need to enjoy the next few years while the plan matures.

Sorry, it may be the langage barrier but I'm not sure I get your point?

dess1313

  • Bristles
  • ***
  • Posts: 441
  • Location: Manitoba Canada
Re: Le Barbu case study
« Reply #8 on: October 26, 2015, 10:07:38 PM »
You have enough float in your checking accounts to cover a nice emergency.  bonus points for that

4 Years left on your mortgage sounds good.  If you wanted to pay slightly more down you could but you're close to the end.  If you had 8 or 12 years left it would make a bigger impact with prepayments.

The leveraged investing sounds like you're adding an extra step and more complication to your investing. Is it really necessary?  Sounds like extra cost using your HELOC.  If you have a HELOC, you could pay off your mortgage but in reality you still have that 2nd loan against your house.  You have robbed peter to pay paul.  why not take a year or 6 months and get the $ saved up and avoid the HELOC entirely when investing



Have you done the math on how much it will actually cost your kids to go to university? Are you planning on keeping them in Quebec? I was under the impression that uni tuition is much lower in Quebec than elsewhere in Canada. I'd just check that you're not oversaving in RESPs.

What's the rationale for keeping so much invested in a taxable account vs maxing out the TFSA? Seems a bit backwards.

I actualy fill the RESP to get the gov grants. As soon as they get to college, I plan to pull as much as I can without penalty and fill the TFSAs if room remain. University is cheap and they can work 4 months/year...

The taxable account is directly linked to the HELOC. Its leveraged investing so, not realy backward. It's borrowed money, the rule for interests deductibility is you must invest outside tax shelter. Called the Smith Manœuvre

It might be different in quebec than manitoba, but RESP generally has to go to the kids going to school i thought.  how exactly did you plan on pulling it and refilling TFSA?

Gogogogogogogo!

I think you basically have it all wrapped up and just need to enjoy the next few years while the plan matures.

Sorry, it may be the langage barrier but I'm not sure I get your point?

he means you're doing good, and that your plan is going well.  sit back and follow the plan you have and you will end up in good shape

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: Le Barbu case study
« Reply #9 on: October 27, 2015, 06:14:41 AM »
You have enough float in your checking accounts to cover a nice emergency.  bonus points for that

4 Years left on your mortgage sounds good.  If you wanted to pay slightly more down you could but you're close to the end.  If you had 8 or 12 years left it would make a bigger impact with prepayments.

In fact, I did prepayments since 2012 (balance was 125k$ back then and now 54k$. My plan was to stop this and only make the regular payment and contribute to my TFSA instead)

The leveraged investing sounds like you're adding an extra step and more complication to your investing. Is it really necessary?  Sounds like extra cost using your HELOC.  If you have a HELOC, you could pay off your mortgage but in reality you still have that 2nd loan against your house.  You have robbed peter to pay paul.  why not take a year or 6 months and get the $ saved up and avoid the HELOC entirely when investing

Using the HELOC to invest 60k$ only takes 2 trades and 5 minutes while saving this amount may take years (5-10) with my actual cashflow. The interests are deductibles according to my tax bracket (38%) so a 2,70% ends up at 1.67%. On the other side, dividends and capital gains are taxed very lightly. The net result over the 40 last years have been 3% net, not to bad for investing money you dont have.



Have you done the math on how much it will actually cost your kids to go to university? Are you planning on keeping them in Quebec? I was under the impression that uni tuition is much lower in Quebec than elsewhere in Canada. I'd just check that you're not oversaving in RESPs.

What's the rationale for keeping so much invested in a taxable account vs maxing out the TFSA? Seems a bit backwards.

I actualy fill the RESP to get the gov grants. As soon as they get to college, I plan to pull as much as I can without penalty and fill the TFSAs if room remain. University is cheap and they can work 4 months/year...

The taxable account is directly linked to the HELOC. Its leveraged investing so, not realy backward. It's borrowed money, the rule for interests deductibility is you must invest outside tax shelter. Called the Smith Manœuvre

It might be different in quebec than manitoba, but RESP generally has to go to the kids going to school i thought.  how exactly did you plan on pulling it and refilling TFSA?

It's not like I intend to call the bank and ask for a transfer from an account to another. For what I know, you can pull out 20k$/year without questions if you prove the kid is in post-secondary (full time). Considering our location and scolarship costs, we will merely see any diference in our expenses meaning this 20k$ is almost fully available (net cashflow). Then, we will decide what is the best thing to do, filling up the TFSA could be one of these options. The 18 years old kid could also get a TFSA opened! 

Gogogogogogogo!

I think you basically have it all wrapped up and just need to enjoy the next few years while the plan matures.

Sorry, it may be the langage barrier but I'm not sure I get your point?

he means you're doing good, and that your plan is going well.  sit back and follow the plan you have and you will end up in good shape

thanks, I was not sure if there was irony, maybe to much enthusiastic

RichMoose

  • Pencil Stache
  • ****
  • Posts: 966
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Re: Le Barbu case study
« Reply #10 on: October 27, 2015, 05:29:44 PM »
I believe your plan is very good and quite conservative. I would not rush to pay down the mortgage any more. You still have tax advantaged room to fill with your TFSA accounts, so I would place your priority there.

I'm not very familiar with the Quebec tax situation as I know it is different from western Canada in many ways, but I would do some calculations on whether or not it is worthwhile to continue pouring money into your RRSPs. If you continue working for 10 years, they will be worth $900,000 @ 6% return with no new contributions. If your expenses are only around $40,000 a year this will almost fully fund your expenses, but all of your income will be taxable. Normally RRSPs make sense for high income earners, but not if it means your RRSP accounts will get too big.

Maybe it would be wiser from a tax perspective to cut your RRSP contributions in half and use the extra money to fund TFSA instead? (I know you run a tight budget and all your cash flow is accounted for). I'm not saying this is necessarily best, but do some calculations to find out. If this is a better way to go, I would suggest a Spousal RRSP from your income so you can balance your wife's account with yours and make your future taxable income more even.

I think the SM is a great idea! Given your large amount of assets, it is appropriate to use your HELOC to invest. It will save you thousands on taxes over the years and the risk is very low. You are clearly responsible enough to keep the amount under control.

Le Barbu, no matter what your do with the small things you will have a comfortable retirement. Saving is the most important thing and you made that a priority. Whether or not you invest in RRSP vs TFSA vs Taxable; use a HELOC to do a SM; pay off your mortgage by 2017; or change your asset allocation to more VTI, it will all make just a small difference in the big picture.

Let us know if you have more specific questions!

forestj

  • 5 O'Clock Shadow
  • *
  • Posts: 98
Re: Le Barbu case study
« Reply #11 on: October 28, 2015, 09:33:35 PM »
If I had a half a million net  worth, I would probably quit right away. Good job!

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: Le Barbu case study
« Reply #12 on: October 29, 2015, 09:52:34 AM »
I believe your plan is very good and quite conservative. I would not rush to pay down the mortgage any more. You still have tax advantaged room to fill with your TFSA accounts, so I would place your priority there.

I just stopped the double payments schedual so my payments are 17k$/year lower, free cashflow will be used to fill the TFSA room. If TFSA contributions are back to 5,550$/year, this mean it will be fully funded in about 5-7 years. When I will renew my mortgage in may 2017, I could lower the payment and keep the balance few more years, especially if rates are still low

I'm not very familiar with the Quebec tax situation as I know it is different from western Canada in many ways, but I would do some calculations on whether or not it is worthwhile to continue pouring money into your RRSPs. If you continue working for 10 years, they will be worth $900,000 @ 6% return with no new contributions. If your expenses are only around $40,000 a year this will almost fully fund your expenses, but all of your income will be taxable. Normally RRSPs make sense for high income earners, but not if it means your RRSP accounts will get too big.

I will think about this issue (to big RRSP) but for now, I will just continue maxing out my RRSP contributing while filling the TFSA room. There is many way I can solve this in the next decades. I could shift my A.A. to hold bonds in my RRSP (drag returns and volatility decrease). I can also decide to work less than 10 years! My actual target is about 7 years from now. If returns are greats, I may finish pulling out my RRSP money in a high tax bracke but this would mean I'm fortunate enough to pay my share of taxes!

Maybe it would be wiser from a tax perspective to cut your RRSP contributions in half and use the extra money to fund TFSA instead? (I know you run a tight budget and all your cash flow is accounted for). I'm not saying this is necessarily best, but do some calculations to find out. If this is a better way to go, I would suggest a Spousal RRSP from your income so you can balance your wife's account with yours and make your future taxable income more even.

The retirement tax-split does not apply to RRSP withdrawals? Good point to inquire...

I think the SM is a great idea! Given your large amount of assets, it is appropriate to use your HELOC to invest. It will save you thousands on taxes over the years and the risk is very low. You are clearly responsible enough to keep the amount under control.

2015 was the first year and a kind of road test. Not to much hassle, 30 seconds each months to "capitalize" the HELOC interests, lets see when the tax season arrive to get the full picture. The free cashflow should be 3,500$ for 94k$ invested and after 10 months, the capital worth 500$ less than the HELOC balance.

Le Barbu, no matter what your do with the small things you will have a comfortable retirement. Saving is the most important thing and you made that a priority. Whether or not you invest in RRSP vs TFSA vs Taxable; use a HELOC to do a SM; pay off your mortgage by 2017; or change your asset allocation to more VTI, it will all make just a small difference in the big picture.

My actual plan is to use another 55-75k$ from HELOC at the begining of 2016 to use my home equity. Mortgage will be repaid in full anywhere between 2019 and 2022...

Let us know if you have more specific questions!

Thank you very much Tuxedo for reading my case study! Great comments, points taken, now I am ready to move on with more confidence. Dont know for you but here (MMM forum) is about the one and only place we can discuss about this kind of stuff without getting the mainstream (pointless/clueless) remarks/comments. Normal people miss the most important thing that makes us so much different: spend less, consume less, waste less!!!

RichMoose

  • Pencil Stache
  • ****
  • Posts: 966
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Re: Le Barbu case study
« Reply #13 on: October 29, 2015, 10:51:46 AM »
Le Barbu, I'm glad to give you some feedback and things to think about with your plan. MMM is also one of the very few places for me to talk about finance without getting strange responses and blank stares. Most of the people I work with probably couldn't explain what a dividend is...

Regarding Spousal RRSPs, I believe last year sometime the Quebec government won't allow pension splitting for people under 65 years old. Federally you can split income from an RRIF, but I don't believe you can split RRSP withdrawals. Essentially this forces you to convert to an RRIF and won't let you split income for provincial income tax purposes regardless.

Are you on track towards implementing a full Smith Maneuver based on about 50% of your home value? If so, you will still be paying off your mortgage faster than normal because the dividend payments would be dropped into a separate chequing account, used to pay your mortgage principal, which allows you to borrow more from your HELOC for investing.

In any event, it looks like your mortgage will be paid off by retirement. That is a smart move.

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: Le Barbu case study
« Reply #14 on: October 29, 2015, 11:24:59 AM »
Le Barbu, I'm glad to give you some feedback and things to think about with your plan. MMM is also one of the very few places for me to talk about finance without getting strange responses and blank stares. Most of the people I work with probably couldn't explain what a dividend is...

Regarding Spousal RRSPs, I believe last year sometime the Quebec government won't allow pension splitting for people under 65 years old. Federally you can split income from an RRIF, but I don't believe you can split RRSP withdrawals. Essentially this forces you to convert to an RRIF and won't let you split income for provincial income tax purposes regardless.

I will defenitly have to explore this avenue in near future. I'll run some numbers and assumptions...

Are you on track towards implementing a full Smith Maneuver based on about 50% of your home value? If so, you will still be paying off your mortgage faster than normal because the dividend payments would be dropped into a separate chequing account, used to pay your mortgage principal, which allows you to borrow more from your HELOC for investing.

I do not intend to implement the full (original?) SM version. In fact, there is at least 7 official versions of SM! Last year, HELOC available was 130k$ and I used 95k$ to invest. Next year, HELOC available will be 75k$ (mostly because of aggressive repayment schedual) and I plan to use most of it. Then, with about 170k$ invested I may stop and just keep the future room to "capitalize" the interests (interest from interests and deductibles). Each year my mortgage capital drop, HELOC available increase and interests pulled from an independent account are transfered back to the HELOC (every month, to the penny!). When mortgage will be repaid in full, total HELOC (used + available) will be 220k$ over a 340k$ market value house (65%). This way, interests from HELOC have no impact on our cashflow and dividends* are available for anything (free cashflow) minus taxes on dividends + tax refund on paid interests.

*minus ROC because ZCN pay a tinny % of ROC, included in each dividend payment. ROC is not eligible and should stay invested or used to repay the loan (not a big deal, 10$/year or 0.010%)


In any event, it looks like your mortgage will be paid off by retirement. That is a smart move.
« Last Edit: October 29, 2015, 11:30:45 AM by Le Barbu »

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: Le Barbu case study
« Reply #15 on: October 29, 2015, 03:01:45 PM »
My actual mortgage payment is 660$ every 2 weeks and actualy, I'm comfortable with that. Meanwhile, I wonder if it would be diligent to my bank and ask for a new amortization/schedual that would bring my regular payment to +/-330$ (7 years amortization). Then, if everything goes well, I could decide to "double-up" to 660$ (the same amount as I pay now) and if I need more cashflow (job loss, miscelaneous) I could stop the double-up and go back to the 330$ every 2 weeks without asking a break to the bank.

WOuld that have any negative impact on my credit?

RichMoose

  • Pencil Stache
  • ****
  • Posts: 966
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Re: Le Barbu case study
« Reply #16 on: October 29, 2015, 04:34:00 PM »
My actual mortgage payment is 660$ every 2 weeks and actualy, I'm comfortable with that. Meanwhile, I wonder if it would be diligent to my bank and ask for a new amortization/schedual that would bring my regular payment to +/-330$ (7 years amortization). Then, if everything goes well, I could decide to "double-up" to 660$ (the same amount as I pay now) and if I need more cashflow (job loss, miscelaneous) I could stop the double-up and go back to the 330$ every 2 weeks without asking a break to the bank.

WOuld that have any negative impact on my credit?

It could be a smart move to help fill your TFSA accounts faster while also making sure your mortgage would be paid off when you believe you will retire. Only worthwhile if they would make the change and not charge any fees or penalties to do it.

It shouldn't really change your credit, but if it does it won't be by much. Unless you believe you might be borrowing a significant amount of money in the future I wouldn't worry about credit scores. I bounce around with my credit score a bit because I churn credit cards for points (nothing extreme). Even though I change credit cards every 6 months or so, my score is well above 760 so I'm always in the "Excellent" category for credit risk.

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: Le Barbu case study
« Reply #17 on: October 29, 2015, 04:47:21 PM »
I will ask about the collaterals doing this but trust me, no way I will pay for any changes! My credit score is actualy 810 (RBC gave me my score for free lately) and I dont worry about it, just curious.

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: Le Barbu case study
« Reply #18 on: November 02, 2015, 01:24:43 PM »
I just received a letter from RBC that our HELOC rate will be at prime + 0.5% from december 10th!!

Our HELOC rate was at prime + 0% for 8 years now (since we bought our house) and I never expected for a change (no renewal date)

What is the best HELOC rate actualy in Canada?

Retire-Canada

  • Walrus Stache
  • *******
  • Posts: 6728
Re: Le Barbu case study
« Reply #19 on: November 02, 2015, 03:10:06 PM »
I just received a letter from RBC that our HELOC rate will be at prime + 0.5% from december 10th!!

Our HELOC rate was at prime + 0% for 8 years now (since we bought our house) and I never expected for a change (no renewal date)

What is the best HELOC rate actualy in Canada?

I don't have a HELOC. I have a LOC [unsecured] with TD. I got a notice that the interest rate went up 1%. I walked into my local branch asked to speak to a loans officer. Told her the rate change was BS as I had been with them for 30yrs+, never had an issue and had a stellar credit score. I told her she can either reverse that rate change or I'd find a LOC with someone else for better terms.

It took a few days for her to wrangle with HQ, but she got it reversed for me.

So if I was you I'd complain and ask for the increase to be reversed.

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: Le Barbu case study
« Reply #20 on: November 02, 2015, 04:31:35 PM »
I just received a letter from RBC that our HELOC rate will be at prime + 0.5% from december 10th!!

Our HELOC rate was at prime + 0% for 8 years now (since we bought our house) and I never expected for a change (no renewal date)

What is the best HELOC rate actualy in Canada?

I don't have a HELOC. I have a LOC [unsecured] with TD. I got a notice that the interest rate went up 1%. I walked into my local branch asked to speak to a loans officer. Told her the rate change was BS as I had been with them for 30yrs+, never had an issue and had a stellar credit score. I told her she can either reverse that rate change or I'd find a LOC with someone else for better terms.

It took a few days for her to wrangle with HQ, but she got it reversed for me.

So if I was you I'd complain and ask for the increase to be reversed.

Thats exactly what I intend to do. But wtf the banks do that kind of thing to their best customer? Last spring, it was an attemp to raise fees on checking account, now this!!! My credit score is 810, we got over 800k$ business with RBC and they just try skimming every penny instead of keeping me satistfied. I'll meet BMO just in case...

Retire-Canada

  • Walrus Stache
  • *******
  • Posts: 6728
Re: Le Barbu case study
« Reply #21 on: November 02, 2015, 04:44:34 PM »
Thats exactly what I intend to do. But wtf the banks do that kind of thing to their best customer? Last spring, it was an attemp to raise fees on checking account, now this!!! My credit score is 810, we got over 800k$ business with RBC and they just try skimming every penny instead of keeping me satistfied. I'll meet BMO just in case...

They are just applying changes to large swaths of customers. I don't think anyone is looking at the details of each case.

It probably works great for them. 8/10 customers just keep paying an\d say 2/10 complain and they drop the rate back to where it was.

Heckler

  • Handlebar Stache
  • *****
  • Posts: 1346
Re: Le Barbu case study
« Reply #22 on: November 02, 2015, 05:05:50 PM »
Ive had a BMO LOC for ten years now.  Hopefully its because balance = 0, but Ive never had any notifications of rate changes, although I know they've happened.

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: Le Barbu case study
« Reply #23 on: November 02, 2015, 07:14:27 PM »
Ive had a BMO LOC for ten years now.  Hopefully its because balance = 0, but Ive never had any notifications of rate changes, although I know they've happened.

We got an increase of our LOC couple years ago but the LOC balance is 0$ for more than 10 years now. Now its prime + 2% but anyway 0$ x prime + 2% is still zero!

I may change my plan and repay the HELOC anytime soon. Probably they just assume I cant !

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: Le Barbu case study
« Reply #24 on: November 02, 2015, 07:23:00 PM »
Thats exactly what I intend to do. But wtf the banks do that kind of thing to their best customer? Last spring, it was an attemp to raise fees on checking account, now this!!! My credit score is 810, we got over 800k$ business with RBC and they just try skimming every penny instead of keeping me satistfied. I'll meet BMO just in case...

They are just applying changes to large swaths of customers. I don't think anyone is looking at the details of each case.

It probably works great for them. 8/10 customers just keep paying an\d say 2/10 complain and they drop the rate back to where it was.

Mustachian problem! They cant figure some of us are good with numbers. How do they think our NW increase by 100k$ every year with a combined  gross income of 120k$? We figured out how to hack the system (taxes, insurances, fees of any kind, etc)!!! Banks are just sales machines

RichMoose

  • Pencil Stache
  • ****
  • Posts: 966
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Re: Le Barbu case study
« Reply #25 on: November 02, 2015, 09:33:00 PM »
I would talk to your mortgage manager at your branch. I'm sure they will reverse the change - they usually do.

My rate for HELOC is Prime +0.5%, always has been. I will negotiate this when I implement my Smith Manoeuvre. Balance is $0 now any way.

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: Le Barbu case study
« Reply #26 on: November 03, 2015, 08:50:55 AM »
I would talk to your mortgage manager at your branch. I'm sure they will reverse the change - they usually do.

My rate for HELOC is Prime +0.5%, always has been. I will negotiate this when I implement my Smith Manoeuvre. Balance is $0 now any way.

I'll let you know how the negociations turn out.

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: Le Barbu case study
« Reply #27 on: November 04, 2015, 09:41:20 AM »
I meet the RBC branch's director yesterday. There is no way to keep my HELOC @ prime +0% anymore. No other banks in Canada do it and most HELOC are prime + 0.5% (at least) for many years now. But...then they come with an alternative. RBC HELOC can be splitted into 5 different segments. I could have 1 of these @ prime - 0.65% (variable rate 2.05%*) with an amortization up to 30 years. The only problem is I dont want to repay the capital (I even "capitalize" interests!) but the segment @ prime + 0.5% would be used to do the payments (cap+int) and keep everything eligible without affecting my cashflow. A segment would decrease and another one would increase. In few years, I could do the same again. What do you think??

We planned to meet again in few weeks...

*2.05% minus my tax bracket is 1.27%, not to bad!

RichMoose

  • Pencil Stache
  • ****
  • Posts: 966
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Re: Le Barbu case study
« Reply #28 on: November 04, 2015, 11:06:36 AM »
I meet the RBC branch's director yesterday. There is no way to keep my HELOC @ prime +0% anymore. No other banks in Canada do it and most HELOC are prime + 0.5% (at least) for many years now. But...then they come with an alternative. RBC HELOC can be splitted into 5 different segments. I could have 1 of these @ prime - 0.65% (variable rate 2.05%*) with an amortization up to 30 years. The only problem is I dont want to repay the capital (I even "capitalize" interests!) but the segment @ prime + 0.5% would be used to do the payments (cap+int) and keep everything eligible without affecting my cashflow. A segment would decrease and another one would increase. In few years, I could do the same again. What do you think??

We planned to meet again in few weeks...

*2.05% minus my tax bracket is 1.27%, not to bad!

A bit more work, but I think it's a good option. Especially with ZCN.TO distributing over 3%. This should easily cover your minimum payments, and like you said, you can refinance every couple years and gain access to that paid down capital.

powersuitrecall

  • Pencil Stache
  • ****
  • Posts: 510
  • Location: Ontario, Canada
Re: Le Barbu case study
« Reply #29 on: November 04, 2015, 11:12:31 AM »
I would talk to your mortgage manager at your branch. I'm sure they will reverse the change - they usually do.

My rate for HELOC is Prime +0.5%, always has been. I will negotiate this when I implement my Smith Manoeuvre. Balance is $0 now any way.

Hey Tuxedo - I hope you start a thread on your SM details. I would love to read and follow!

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: Le Barbu case study
« Reply #30 on: November 04, 2015, 12:16:21 PM »
I meet the RBC branch's director yesterday. There is no way to keep my HELOC @ prime +0% anymore. No other banks in Canada do it and most HELOC are prime + 0.5% (at least) for many years now. But...then they come with an alternative. RBC HELOC can be splitted into 5 different segments. I could have 1 of these @ prime - 0.65% (variable rate 2.05%*) with an amortization up to 30 years. The only problem is I dont want to repay the capital (I even "capitalize" interests!) but the segment @ prime + 0.5% would be used to do the payments (cap+int) and keep everything eligible without affecting my cashflow. A segment would decrease and another one would increase. In few years, I could do the same again. What do you think??

We planned to meet again in few weeks...

*2.05% minus my tax bracket is 1.27%, not to bad!

A bit more work, but I think it's a good option. Especially with ZCN.TO distributing over 3%. This should easily cover your minimum payments, and like you said, you can refinance every couple years and gain access to that paid down capital.

My SM plan include pulling out of the account the dividends. This money is my "free" cashflow + the tax refund over the interests paid. I assume the capital gain (unrealized) to offset the interests (capitalized). I'm working on a spread sheet now to figure the difference. Like you said, a little more work but still, I think this will put me ahead of the original plan.

Like powersuitrecall said, I would be interested in following Tuxedo's SM ! What is your plan?

RichMoose

  • Pencil Stache
  • ****
  • Posts: 966
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Re: Le Barbu case study
« Reply #31 on: November 04, 2015, 01:00:51 PM »
Hey Tuxedo - I hope you start a thread on your SM details. I would love to read and follow!

Will definitely consider it when the time comes. Currently I'm on the verge of moving to a different job (should find out in a few weeks). If it all goes through, we will also be moving to a new city. The cost of living there is quite a bit cheaper mainly due to housing, so it may put me in an ideal position to start a SM.

For now my strategy is to catch up our RRSP and TFSA accounts. Progress is great so far! My RRSP and TFSA are topped up and we've about 1/2 filled my wife's TFSA. We'll see about the upcoming TFSA changes, but for now it looks like we're on track to have these accounts filled including the yearly increase by sometime in the middle of next year. Possibly sooner if I sell my current house and move the proceeds into the tax advantaged accounts.

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: Le Barbu case study
« Reply #32 on: November 25, 2015, 07:56:15 AM »
I finally invested another 55k$ from the HELOC (Smith Manoeuvre) and converted the 150k$ HELOC @ prime + 0% (soon to be prime +0.5%) for a prime -0.65% segment. Now, we have 750k$ invested (30% Canadian stocks (ZCN and RBF556), 45%US stocks (25%VTI, 20% VBR) and 25% International stocks (VXUS). We owe 150/750 for a 20% leverage and interests are fully deductibles (38% marginal rate). We also have only 8 holdings across 5 accounts with average MER of 0.15%. I changed our mortgage payment for 300$ (instead of 660$) every 2 weeks to improve our cashflow and fill our TFSA as fast as we can. We are now over 80% FI and should be 100% FI in about 4 years!
« Last Edit: November 25, 2015, 09:56:45 AM by Le Barbu »

powersuitrecall

  • Pencil Stache
  • ****
  • Posts: 510
  • Location: Ontario, Canada
Re: Le Barbu case study
« Reply #33 on: November 25, 2015, 08:52:41 AM »
I finally invested another 55k$ from the HELOC (Smith Manoeuvre) and converted the 150k$ HELOC @ prime + 0% (soon to be prime +0.5%) for a prime -0.65% segment. Now, we have 750k$ invested (30% Canadian stocks (ZCN and RBF556), 45%US stocks (25%VTI, 20% VBR) and 25% International stocks (VXUS). We owe 150/750 for a 20% leverage and interests are fully deductibles (38% marginal rate). We also have only 8 holdings across 5 accounts with average MER of 0.15%. I changed our mortgage payment for 300$ (instead of 660%) every 2 weeks to improve our cashflow and fill our TFSA as fast as we can. We are now over 80% FI and should be 100% FI in about 4 years!

Impressive!  What are your plan going forward?  Further investing from the HELOC as you pay off your mortgage?  How about when your mortgage is complete?

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: Le Barbu case study
« Reply #34 on: November 25, 2015, 09:14:37 AM »
I finally invested another 55k$ from the HELOC (Smith Manoeuvre) and converted the 150k$ HELOC @ prime + 0% (soon to be prime +0.5%) for a prime -0.65% segment. Now, we have 750k$ invested (30% Canadian stocks (ZCN and RBF556), 45%US stocks (25%VTI, 20% VBR) and 25% International stocks (VXUS). We owe 150/750 for a 20% leverage and interests are fully deductibles (38% marginal rate). We also have only 8 holdings across 5 accounts with average MER of 0.15%. I changed our mortgage payment for 300$ (instead of 660%) every 2 weeks to improve our cashflow and fill our TFSA as fast as we can. We are now over 80% FI and should be 100% FI in about 4 years!

Impressive!  What are your plan going forward?  Further investing from the HELOC as you pay off your mortgage?  How about when your mortgage is complete?

My plan is to keep the same amount invested from HELOC but the interests will drag it up over time because of the "capitalization". My mortgage balance is 53k$ (today) and my new amortization schedual is over the next 7 years. I already have a 17k$ buffer (unused HELOC room) and even with a prime rate of 5-6%, I will not hit the max limit before 10-12 years. This is my safety net. I don't care being positive or negative with this on the short term but I dont want this to surge money from our cashflow. Over a longer period, the capital gain should offset the interests. I will now focus on filling the TFSA room (RRSPs and RESP are maxed out already) and re-evaluate what is the best next move!

RichMoose

  • Pencil Stache
  • ****
  • Posts: 966
  • Location: Alberta
  • RiskManagement
    • The Rich Moose | A Better Canadian Finance Blog
Re: Le Barbu case study
« Reply #35 on: November 25, 2015, 09:53:45 AM »
I finally invested another 55k$ from the HELOC (Smith Manoeuvre) and converted the 150k$ HELOC @ prime + 0% (soon to be prime +0.5%) for a prime -0.65% segment. Now, we have 750k$ invested (30% Canadian stocks (ZCN and RBF556), 45%US stocks (25%VTI, 20% VBR) and 25% International stocks (VXUS). We owe 150/750 for a 20% leverage and interests are fully deductibles (38% marginal rate). We also have only 8 holdings across 5 accounts with average MER of 0.15%. I changed our mortgage payment for 300$ (instead of 660%) every 2 weeks to improve our cashflow and fill our TFSA as fast as we can. We are now over 80% FI and should be 100% FI in about 4 years!

Wow! I think this is fantastic! You will have those TFSA accounts filled up before your retirement no problem.

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: Le Barbu case study
« Reply #36 on: November 25, 2015, 10:08:55 AM »
I finally invested another 55k$ from the HELOC (Smith Manoeuvre) and converted the 150k$ HELOC @ prime + 0% (soon to be prime +0.5%) for a prime -0.65% segment. Now, we have 750k$ invested (30% Canadian stocks (ZCN and RBF556), 45%US stocks (25%VTI, 20% VBR) and 25% International stocks (VXUS). We owe 150/750 for a 20% leverage and interests are fully deductibles (38% marginal rate). We also have only 8 holdings across 5 accounts with average MER of 0.15%. I changed our mortgage payment for 300$ (instead of 660%) every 2 weeks to improve our cashflow and fill our TFSA as fast as we can. We are now over 80% FI and should be 100% FI in about 4 years!

Wow! I think this is fantastic! You will have those TFSA accounts filled up before your retirement no problem.

Sure the TFSA will increase pretty fast but I don't know what the future contribution limits will be (probably back to 5,500$/year). It could take 10 years to catch up, who knows?

Even if I consider ourselves to be FI in a 4-5 years timeframe, I may keep working for another 5 years after FI but only part time if possible. I could even use the TFSAs to withdraw some RRSP depending of our tax rates.

powersuitrecall

  • Pencil Stache
  • ****
  • Posts: 510
  • Location: Ontario, Canada
Re: Le Barbu case study
« Reply #37 on: November 25, 2015, 10:43:10 AM »
Sure the TFSA will increase pretty fast but I don't know what the future contribution limits will be (probably back to 5,500$/year). It could take 10 years to catch up, who knows?

I'm curious - had you considered maxing out your TFSAs before leveraging via your HELOC in a taxable account?

I guess the TFSA contribution will return to $5500 as soon as the Libs can put out a budget.  It's going to be indexed to inflation though, which means it should go to $6000 in 2017 or 2018.

Even if I consider ourselves to be FI in a 4-5 years timeframe, I may keep working for another 5 years after FI but only part time if possible. I could even use the TFSAs to withdraw some RRSP depending of our tax rates.

We will definitely be doing this (if it works out to be effective at minimizing our taxes).  FIRE will be interesting!

BTW - we are both 43 and plan to be FI at about the same time (4 years).  I've been thinking about posting a case study - I might do it!  Cheers!

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: Le Barbu case study
« Reply #38 on: November 25, 2015, 11:24:43 AM »
Sure the TFSA will increase pretty fast but I don't know what the future contribution limits will be (probably back to 5,500$/year). It could take 10 years to catch up, who knows?

I'm curious - had you considered maxing out your TFSAs before leveraging via your HELOC in a taxable account?

I guess the TFSA contribution will return to $5500 as soon as the Libs can put out a budget.  It's going to be indexed to inflation though, which means it should go to $6000 in 2017 or 2018.

Even if I consider ourselves to be FI in a 4-5 years timeframe, I may keep working for another 5 years after FI but only part time if possible. I could even use the TFSAs to withdraw some RRSP depending of our tax rates.

We will definitely be doing this (if it works out to be effective at minimizing our taxes).  FIRE will be interesting!

BTW - we are both 43 and plan to be FI at about the same time (4 years).  I've been thinking about posting a case study - I might do it!  Cheers!

Back in 2009 when TFSA were created, we started maxing them out right away. All of our investments were into RBC's mutual funds and our average MER was close to 2%. The TFSA was invested in Canadian bonds mutual funds wich mean a close to 0% expected return after fees. At this point, our mortgage was 170k$ and a private investing oportunity was coming soon. We then decided to swap the TFSA money toward debt to prepare for investing through HELOC. Private shares are not available into a TFSA tough. So, the mortgage decreased damn fast (about 20k$/year) and the private investment never happened. I began to handle my investments by myself in 2012 and sold the high MER RBC funds and bought low cost ETF. The mortgage principal is now very low because of this and I wanted this equity to work for us instead of sitting still. Et voilà!

If I knew in advance all I know today, the TFSA would be maxed out and the morgage would be 130k$ The actual situation is not better nor worse, just a bit different. I learned through this journey and know myself better as an individual and as an investor. I know I dont want/need bonds until our total investments reach 1M$, I know that fees (MER) and taxes are important to avoid when possible, I discovered MMM and stopped the lifestyle inflation and the power of saving more etc.
« Last Edit: November 25, 2015, 11:26:29 AM by Le Barbu »

BarbeRiche

  • 5 O'Clock Shadow
  • *
  • Posts: 69
  • Location: Montreal
    • BarbeRiche
Re: Le Barbu case study
« Reply #39 on: November 25, 2015, 09:56:16 PM »
We then decided to swap the TFSA money toward debt to prepare for investing through HELOC. Private shares are not available into a TFSA tough.

Was it a private placement of a public company?

If so, I found out you can actually hold them in your TFSA.  I participated in a private placement recently and Questrade told me I couldn't hold them at first.  But after investigations, I found out that I needed to wait the 4 months lockup (during when the shares were not tradable) and then I just needed to scan my share certificate and voilà.

You could also do it right away with a full-service broker but none of the discount brokerage firm does it I believe.


Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: Le Barbu case study
« Reply #40 on: November 26, 2015, 06:30:18 AM »
We then decided to swap the TFSA money toward debt to prepare for investing through HELOC. Private shares are not available into a TFSA tough.

Was it a private placement of a public company?

If so, I found out you can actually hold them in your TFSA.  I participated in a private placement recently and Questrade told me I couldn't hold them at first.  But after investigations, I found out that I needed to wait the 4 months lockup (during when the shares were not tradable) and then I just needed to scan my share certificate and voilà.

You could also do it right away with a full-service broker but none of the discount brokerage firm does it I believe.

When said private share, I mean buying some shares in a small business (4 owners, 15 employes) not a public company. It may be possible but I cannot imagine the hassle!

powersuitrecall

  • Pencil Stache
  • ****
  • Posts: 510
  • Location: Ontario, Canada
Re: Le Barbu case study
« Reply #41 on: November 26, 2015, 10:27:07 AM »
Back in 2009 when TFSA were created, we started maxing them out right away. All of our investments were into RBC's mutual funds and our average MER was close to 2%. The TFSA was invested in Canadian bonds mutual funds wich mean a close to 0% expected return after fees. At this point, our mortgage was 170k$ and a private investing oportunity was coming soon. We then decided to swap the TFSA money toward debt to prepare for investing through HELOC. Private shares are not available into a TFSA tough. So, the mortgage decreased damn fast (about 20k$/year) and the private investment never happened. I began to handle my investments by myself in 2012 and sold the high MER RBC funds and bought low cost ETF. The mortgage principal is now very low because of this and I wanted this equity to work for us instead of sitting still. Et voilà!

If I knew in advance all I know today, the TFSA would be maxed out and the morgage would be 130k$ The actual situation is not better nor worse, just a bit different. I learned through this journey and know myself better as an individual and as an investor. I know I dont want/need bonds until our total investments reach 1M$, I know that fees (MER) and taxes are important to avoid when possible, I discovered MMM and stopped the lifestyle inflation and the power of saving more etc.

Our paths are a bit different.  We married in 2009 shortly after buying a house with 270K owing.  We powered our way through mortgage debt for 5 years without doing much other than maxing RESPs for our kids.  We renewed the mortgage last year owing ~60K and shortened the amortization to 3 years.  Although we are still paying it off rather quickly, we are focusing the remainder of our cash fire hose at tax advantaged accounts.  We should have everything maxed by the time the mortgage is done.  That is going to be a sweet victory.

Had I been smarter about it, I would have maxed TFSAs (and the little bit we get to put in RRSPs) yearly while paying a little less on the mortgage, but hey ... you know the way hindsight works.  Regardless, I'm happy to be where I am.

As to the future: FI and RE for one of us in 4 years.  The other will work a bit longer.  Or not.  Who knows?

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: Le Barbu case study
« Reply #42 on: November 26, 2015, 11:07:57 AM »
Back in 2009 when TFSA were created, we started maxing them out right away. All of our investments were into RBC's mutual funds and our average MER was close to 2%. The TFSA was invested in Canadian bonds mutual funds wich mean a close to 0% expected return after fees. At this point, our mortgage was 170k$ and a private investing oportunity was coming soon. We then decided to swap the TFSA money toward debt to prepare for investing through HELOC. Private shares are not available into a TFSA tough. So, the mortgage decreased damn fast (about 20k$/year) and the private investment never happened. I began to handle my investments by myself in 2012 and sold the high MER RBC funds and bought low cost ETF. The mortgage principal is now very low because of this and I wanted this equity to work for us instead of sitting still. Et voilà!

If I knew in advance all I know today, the TFSA would be maxed out and the morgage would be 130k$ The actual situation is not better nor worse, just a bit different. I learned through this journey and know myself better as an individual and as an investor. I know I dont want/need bonds until our total investments reach 1M$, I know that fees (MER) and taxes are important to avoid when possible, I discovered MMM and stopped the lifestyle inflation and the power of saving more etc.

Our paths are a bit different.  We married in 2009 shortly after buying a house with 270K owing.  We powered our way through mortgage debt for 5 years without doing much other than maxing RESPs for our kids.  We renewed the mortgage last year owing ~60K and shortened the amortization to 3 years.  Although we are still paying it off rather quickly, we are focusing the remainder of our cash fire hose at tax advantaged accounts.  We should have everything maxed by the time the mortgage is done.  That is going to be a sweet victory.

Had I been smarter about it, I would have maxed TFSAs (and the little bit we get to put in RRSPs) yearly while paying a little less on the mortgage, but hey ... you know the way hindsight works.  Regardless, I'm happy to be where I am.

As to the future: FI and RE for one of us in 4 years.  The other will work a bit longer.  Or not.  Who knows?

My plan was to kill the mortgage within the next 3 years as well but our cashflow would not permit to use any of the TFSA room. Maxing out the RRSPs and RESP was the best I could do in the last 3 years while making double-down on mortgage. I would really like to be abble maxing out every registered accounts and repay the mortgage in 3-4 years but that is not possible. I keep focus on improving our cashflow!

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: Le Barbu case study
« Reply #43 on: March 15, 2016, 07:15:28 PM »
Actualy, we are 6k$ underwater (capital vs HELOC balance) but receive a 1,200$ dividend payment every quarter. Still comfortable with the plan. This year, we will invest another 23,5k$from our cashflow RRSP, RESP and TFSA. Mostly ZCN and VXUS
« Last Edit: October 20, 2016, 06:57:32 AM by Le Barbu »

Catherine Campbell

  • 5 O'Clock Shadow
  • *
  • Posts: 1
Re: Le Barbu case study
« Reply #44 on: October 19, 2016, 10:28:29 PM »
Hi there! I think you should have chosen an RESP as that’s a better option over a TFSA. The government grants are, no doubt, a good enhancement, but in Tax Deferred Growth, there is little or no tax to be paid as it is taxed at student low tax rate. I understand that you wish to increase the cash flow, but even with an RESP, there is a limit. The RESP is a post-secondary education-specific tax-deferred investment where you can contribute up to a maximum of $50,000 per child. Through a TFSA, which is a general savings account that can be used for school, you can contribute only $5,500 annually. However, I would advise that you let a sales representative guide you on a good strategy for investment.

powersuitrecall

  • Pencil Stache
  • ****
  • Posts: 510
  • Location: Ontario, Canada
Re: Le Barbu case study
« Reply #45 on: October 20, 2016, 07:07:34 AM »
Actualy, we are 6k$ underwater (capital vs HELOC balance) but receive a 1,200$ dividend payment every quarter. Still comfortable with the plan. This year, we will invest another 23,5k$from our cashflow RRSP, RESP and TFSA. Mostly ZCN and VXUS

Le Barbu - I continue to be in awe of your investing balls.  Hard core!

PS - I don't think you need a sales representative.

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: Le Barbu case study
« Reply #46 on: October 20, 2016, 07:25:29 AM »
Thank you Catherine for shopping by!

Not sure I understand what you mean about RESP vs TFSA? My RESPs are maxed out every year to the level grants are maxed out.

Now, there is a big update to my situation, I have been fired 3 months ago and decided to take 1 year (at least) home. I feel a lot better since my job has became unpleasing lately, our quality of life and my health are now improving. We now live on 1 salary and it's fine. My wife is more "normal" (not much mustachian) and feel good about the work/spending pattern.

I'll try to keep you updated!

Le Barbu

  • Handlebar Stache
  • *****
  • Posts: 1050
  • Age: 47
  • Location: Québec
  • I really didn’t say everything I said - Y. B.
Re: Le Barbu case study
« Reply #47 on: October 20, 2016, 07:36:50 AM »
Actualy, we are 6k$ underwater (capital vs HELOC balance) but receive a 1,200$ dividend payment every quarter. Still comfortable with the plan. This year, we will invest another 23,5k$from our cashflow RRSP, RESP and TFSA. Mostly ZCN and VXUS

Le Barbu - I continue to be in awe of your investing balls.  Hard core!

PS - I don't think you need a sales representative.

Tanks powersuitrecall!

Having some investing balls is still paying out, our leverage investing is back in the positive, capital is 5k$ positive, including interests paid but excluding dividends.

Our family NW is 50k$ more than when I lost my job. I really dont know if I will be working full time again, we dont need much money because our low COL and NW close to 1M$ so life quality is now my priority.

This morning, I am going out for a 10km walk in the forest behind my house!

TexasRunner

  • Pencil Stache
  • ****
  • Posts: 927
  • Age: 28
  • Location: Somewhere in Tejas
Re: Le Barbu case study
« Reply #48 on: October 20, 2016, 08:22:33 AM »
Thank you Catherine for shopping by!

Not sure I understand what you mean about RESP vs TFSA? My RESPs are maxed out every year to the level grants are maxed out.

Now, there is a big update to my situation, I have been fired 3 months ago and decided to take 1 year (at least) home. I feel a lot better since my job has became unpleasing lately, our quality of life and my health are now improving. We now live on 1 salary and it's fine. My wife is more "normal" (not much mustachian) and feel good about the work/spending pattern.

I'll try to keep you updated!

Actualy, we are 6k$ underwater (capital vs HELOC balance) but receive a 1,200$ dividend payment every quarter. Still comfortable with the plan. This year, we will invest another 23,5k$from our cashflow RRSP, RESP and TFSA. Mostly ZCN and VXUS

Le Barbu - I continue to be in awe of your investing balls.  Hard core!

PS - I don't think you need a sales representative.

Tanks powersuitrecall!

Having some investing balls is still paying out, our leverage investing is back in the positive, capital is 5k$ positive, including interests paid but excluding dividends.

Our family NW is 50k$ more than when I lost my job. I really dont know if I will be working full time again, we dont need much money because our low COL and NW close to 1M$ so life quality is now my priority.

This morning, I am going out for a 10km walk in the forest behind my house!

Congrats on your decision!!!  Your kids are 9 & 13 now (I think)...  Headed into their teen years with plenty of time to spare is an AMAZING opportunity.  I hope you really enjoy the next several months off.  Get some skiing in or something.  Random fun stuff with the boys.  Good job getting in this position, you earned it!

As far as the financials go, I'm not that familiar with Canada except what I've picked up on here.  I get the over-leveraging your mortgage and HELOC (on paper anyways) makes sense because you guys are in closed mortgages up there...  Actually the complete opposite of what we have (predominately) in the states.  I'm personally too risk adverse to follow that route but with your other worth and liquidity, that makes sense for you.  (As powersuit said) Nice kahunas investing that way!

I may have missed it reading through the thread, but what is your expected FIRE'd spending level?  I'm fairly certain it will drop for you compared to current level-  You may wind up having a bit more permanence than 1 year off and thats OK if it makes sense.

Nice work!  I hope I'm at least where you are in 15-20 years.

powersuitrecall

  • Pencil Stache
  • ****
  • Posts: 510
  • Location: Ontario, Canada
Re: Le Barbu case study
« Reply #49 on: October 20, 2016, 08:28:26 AM »
Nice and calm after 3 months of job loss.  I love it.  This is what happens with great planning and execution.