Mortgage or LOC
I have a very large mortgage (more than $500k and less and a Million) currently at prime minus .95 (so 2.05) and a relatively small LOC (around $50k) at prime plus .5
Should I pay off the LOC first and make 30 year payments on the mortgage and then accelerate mortgage payments?
If I concentrated on the LOC will take about 18 months to pay most of it off then I can concentrate on the mortgage
Is it a HELOC or an unsecured?
I'd personally pay off the LOC first.
The rate is higher, the amount is relatively smaller, therefore, will give you an motivational boost once it is paid off.
Also, not having an outstanding LOC balance makes your financial situation more stable, gives you more option, and makes it easier to get credit in the future if you need it.
Thanks, that is what I was thinking
It is a HELOC by the way
I actually want to start using it to make investments once it is paid off and I can concentrate on the mortgage - a bit of a smith maneuver
Ha, you lost me with the last part.
How much do you plan to leverage from the HELOC after paying it off?
$50K will not provide you enough investable capital to make the SM worthwhile or have any appreciable impact on your $500K+ mortgage.
Anything more than that will increase your risk profile substantially.
A large mortgage + a large HELOC against that same property is a very risky situation, and if there is even the slightest hint of a RE valuation correction, the bank can ask you to pay down the HELOC.
Sorry not sure I understand your point
It is a readvanceable mortgage so my thinking is once the LOC is paid off and I am concentrating on the mortgage I was going to take about 25k a year and invest in around 4 stocks (2 are already set up as DRIPs) and once the mortgage is paid off I will pay off the LOC - I am only 40 and my wife and I have 2 DB plans with the government so this is a long term plan
Why the shell game? Why not save up the money you want to invest and then play with that?
The readvanceable mortgage does not change the risk profile.
In the end, the risk factors are the same - home valuation, stock market risk, interest rate risk, etc.
The DB plan does change the profile, though (you didn't mention this in your original post).
I assume there is a high degree of job security as well.
If you make these two key assumptions i.e. job security and safety of the DBP, then essentially don't need need to save for retirement on your own.
That makes your plan more viable.