# Mortgage vs. Heloc



## gastonbuffet (Sep 23, 2004)

I know it depends on the particular's situation, but...
any preferences, bad experiences?

I'm going Heloc , what's the best rate you got or heard of someone of getting? 
Anyone else on a heloc to buy a house? what rate?

i thought i could do some comparisson shopping here before signing anything.
Your experiences with a mortgage broker?. Is it better to go to your bank directly?


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## gordguide (Jan 13, 2001)

Personally, I am wary of Heloc's because of the interest rate risk, and the tendency to treat it as a line of credit, which sometimes results in a mortgage that simply never gets paid; a kind of revolving credit with home equity as the collateral.

I know some people who owe the same as they did when they bought the house; getting Heloc's on every renewal to pay off ill-advised credit card debt. If being mortgage-free isn't important to you, or you have strong spending discipline and are willing to risk a Prime Rate increase, it might be good for you.

They are quite popular in the US (as are second mortgages), and these really come from there due to the difference in that market. Because mortgage costs are deductible from income; in America paying off the mortgage is a financial penalty.

So most people simply never pay the mortgage off, and if you move you pretty much have to buy a home worth at least as much as your old one which can be a problem if you move from, say, California to Kansas. People end up building monster homes in smaller markets. They already have a Capital Gains tax bill, and if you mortgage for less than your old home (or buy cash) you have to repay those tax deductions on top of that. In the US the more home debt you have the better you are as far as daily and yearly cash flow is concerned.

In Canada, we pay with after tax dollars but retain the capital gain tax free, so paying the mortgage quickly is the best strategy.

Mortgage Brokers are the way to go if you plan to shop around for mortgages; you will get a good rate, typically better than you can find even if you talk to the eventual lender yourself, but that's not the only reason.

If you try different banks/trust/mortgage companies, they do a credit query on your file each time (as a preliminary step; you don't actually have to apply for the mortgage).

Since the query usually doesn't indicate the reason, it can harm your credit rating somewhat; it's suspicious to have a client all-of-a-sudden applying for credit multiple times at multiple institutions; it raises fraud flags, for one thing.

A broker will do one query, the same as if you simply renewed with your current lender.


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## gastonbuffet (Sep 23, 2004)

Thanks gordguide. Most informative.

does anybody else has 
any numbers to compare out there?


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## Moscool (Jun 8, 2003)

As above, go for it ONLY if you have strong financial discipline !


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## enaj (Aug 26, 2004)

If you go for a mortgage, do it through a mortgage broker (and not the bank). They will get you the best rate as they do the shopping around for you. Banks are slaves to the shareholder.


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## FeXL (Jan 2, 2004)

GB:

No experience w/ Heloc's, but have some firsthand knowledge w/ mortgages. As above go to a broker. When you decide on a lending institute, if your budget can handle it, don't lock in. Follow the floating rate, you'll save thousands.

There was a study done a while back (early nineties, there'sprobably a current one somewhere) that covered mortgage interest costs dating from 1960. The conclusion was that at no time were interest costs for a locked in rate less than those of a floating rate, even during the 18% plus days of the early eighties.

Now, I know that the link police are going to shoot me down because I haven't backed up the existence of this report  , but we ran across it while conducting research for our own mortgage eleven years ago. Just can't recall where...  

How it works is as follows: Locked in rates are never as economical as floating. While the locked in rate may be, say, 5%, the floating rate may be a half or 3/4 of a point less. Sure, you'll save money if the rate goes up during your term. However, you'll never be able to take advantage of the savings if the rate goes down. Plus, you're working with a lower rate from the start. 

You just have to figure a worst case scenario for your budget (highest interest rate you could afford) and work backwards from there. If your budget can handle a maximum of $1000/month PIT (principal, interest, taxes) then set your mortgage up for somewhat less, say $800/month, current interest rates depending. If, as also mentioned above, you are extremely disciplined financially, you could just overpay monthly the difference between your required payment (say, $800/month) and your worst case (say, $1000/month). This makes a huge difference to the bottom line. 

In addition, my bride & I have also put aside most of our loonies & toonies, using them for a semi-annual extra payment of around $300. It doesn't seem like much until you add it up for 11 years. Make sure that your lending agreement allows for non-penalized extra payments at any time.

One more point to take advantage of. If possible, go to biweekly payments. There is money to be saved here because interest is calculated on the reduced principal every time you make a payment (26 times a year), rather than 12 (as w/ monthly payments).

Using the above methodology, our 20 year mortgage will be done next winter-in less than 13 years. That speaks for itself.

Hope this helps.


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## gastonbuffet (Sep 23, 2004)

really helpfull, thanks.

any other input is greatly appreciated. 
My objective is to try to get the bank to give me a better rate that what they offered me( even though they offer prime, which is good, maybe they can lower it a couple of decimals, which would be great.)

thanks again guys.

or i can do like imachungry, get me a better rate , and i'll send you 20 bux


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