# What to do? Markets dropped, carrying two homes, HELOC interest rates!



## kork (Jun 9, 2012)

So I need to get this out there because my own mind is spinning with all the options. I was awake at 1:30am running through the different possibilities in my head. I've barely slept since then. This is a nightly occurrence.

We just bought a new home (Yay!). It's not conditional on us selling our current home.

Our new home was $700k and we're hoping to sell our current home for just under $600k. Ultimately, there will be a $150k difference between the two homes after closing costs, realtor fees, etc). Our closing date on our new home is middle of December.

Our home has currently been on the market for 7 days and we've had around 8-9 showings and we have another showing tomorrow. All very positive feedback, multiple other realtors have indicated the home is priced very well and that there should be no problem selling it. The only real stumbling blocks are that the house is a bit small (1500 square feet livable space with limited storage). So that's the hurdle.

So we've already passed the _"house goes on the market and hope for multiple offers on the first day"_ phase. Now we're in the _"how did the showing go, we hope they make an offer"_ stage.

We currently have a fixed mortgage with 7.5 months remaining at 2.29%. Mortgage balance remaining is $138k.

So I'm racking my head with the scenarios as I see them.

*Scenario 1) *Best case scenario, we'd sell our home before with a closing date of when we move into our new home. The goal (as of 2 weeks ago) was that we'd use our TFSA's to pay the $150k difference (Currently valued at $165k). That would allow us to remain in our nice little mortgage with a rate of 2.29% and not need to refinance, pay penalties, etc. in 7.5 months when it comes up for renewal, we've settled in and we're able to make smart decisions about where our mortgage goes.

But this has been complicated recently as our TFSA's have lost $7k in value over the last 2 weeks (I was going to take them out once we purchased the new home, but then the market had a few heavy hits. If the TFSA's don't recover somewhat by the closing date, then we're looking at using our HELOC which is at 4.2% to make up the difference. $150k at 4.2% for 3 months is better than $150k at 4.2% for a year. Might as well have used the TFSA's then. But it's a bet either way. Does anyone have a magic crystal ball I could borrow please???

*Scenario 2)* We don't sell our home in time but we still want to move into our new home. Now we have two homes, one with a great interest rate on the one we're looking to sell (although nearly matured). Additionally, this home is costing us $1k to sit on monthly during the winter including mortgage interest, property taxes, utilities. 

I see multiple options in the second scenario.

a) Take the house off the market and wait till spring. List and hopefully sell when the market is buzzing again.
b) Keep the home listed through the winter?
c) Rent the home for 3 months? 12 months? 

With both a and b above, the challenge here is the furniture. If we move, the house will be empty. I'm not a fan of selling an empty house. People like what they can see, not what they can imagine (most of the time) and empty house screams of desperation to me.

And even if we do need to get a new mortgage on the new home, should we lock in at 1 year (3.24% from our current lender) or go the full 5 years? We've been focusing on paying down our mortgage and have maxed all of our registered investments. We've been working on our non-registered investments over the last few years (currently valued around $130k). Should I even consider keeping the mortgage low or is it better to have a beefy mortgage since I can write off about 20% of the interest for home office expenses anyways? Or rather than take the money from the TFSA's, do we sell off our non-registered investments (which would not really have any capital gains right now because of the recently blip in the market)?

So I'm not sure what the point of this post is. I'm in _"be quiet and wait"_ mode. But I'm trying to plan all the various scenarios and how they'll unfold without getting caught by surprise and finding myself in a sucky situation where I'm paying a stupid interest rate in a desperate mortgage or whatever may happen. Right now there's so many options and my mind is racing to analyze all of them.

My realtor is confident the home will sell, but suggests the closing date will not be what we're hoping for and that we'll need to get bridge financing (not a big deal) but until that happens, I'm not sleeping!!!


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## Just a Guy (Mar 27, 2012)

First off, forget about renting it temporarily, that’s asking for trouble. Last thing you need is someone trashing the place. It won’t cash flow anyway. 

Next, there is nothing wrong with selling an empty home. In fact, the place will look larger empty, and you were complaining it was small, so that’s a good thing. If you’re really worried, you could call a staging company, but I wouldn’t. 

Now for the main point, you’re worrying about nothing in the grand scheme of things. A few months of interest is nothing in the long term, certainly nothing worth losing sleep over. No one can maximize profits (sell at the peak, buy at the low, get the best rates, etc.) on a consistent basis, so why worry about it. Do the best you can at the time (buy when you think it’s a good price, sell the same, lock in a good rate) and stop worrying that it wasn’t perfect. You’re not going to be perfect, you’re going to leave something on the table, but you’ll be fine in the long run. 

Think of it as the price of making money. 

The real estate market is slow right now, prices are beginning to fall, you’re going to have to wait longer than expected, but it will sell eventually...relax and face the facts of life.


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## birdman (Feb 12, 2013)

I agree with everything that Just a Guy posted but maybe consider also taking a sleeping pill (or 1/4 of one) when you wake up in the middle of the night. Have done that lots when crazy things or things you have no control over bother you. Also, the waking up thing will gradually pass. Also, you have done things right and thought it out thoroughly and made the decision and was well thought out. I went through a similar situation years (35 yrs ago) when I quit my job in Vancouver and purchased a newer home in Kelowna. Our Vancouver (clear title) home in Little Mtn area was listed at $160,000. and the market was in a freefall. I interim financed the Kelowna purchase but no offers on the Vancouver ppty until I finally got one for 146,000. or close to 10% below asking price. We accepted it. I had to carry a loan for one month on the Kelowna ppty. The point I am making is that the $14,000. (10%) hit I took on the reduction in sale price is virtually NOTHING in my todays world. Inflation and time have a way of making a large issue look small and if you get a lower than expected offer on your existing house (and you will), don't be overly concerned over and don't lose it.


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## Danny (Oct 17, 2012)

Just a quick thought for you.... Someone told me a quota a while back that sums up a lot off most peoples issues.
“I am an old man and have known a great many troubles, but most of them never happened.”


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## OnlyMyOpinion (Sep 1, 2013)

8-9 showings in the first week is not bad in my experience. That suggests there is 'a market' for your place and its specs. 
If no offers come, that suggests buyers are finding better value in competing listings that are currently out there - i.e. that your price may be too high.
But its too early to be worried yet. See what comes of the initial set of showings. It will sell.
Added: A good realtor will be getting feedback from the realtors that have been through with clients, and will know the level of interest your place has had/any show-stoppers, etc.


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## OptsyEagle (Nov 29, 2009)

You were planning on using your TFSA investments to pay for a home in December, yet you left the money invested in volatile investments. Why would you do that? Hopefully you are still not relying on hope as opposed to common sense and have now liquidated the investment you need and put it into guaranteed investments.

If you haven't then I certainly can't help you. Good luck with your hope. No wonder you are not sleeping well. It's because down deep in you how well hope works out. Only in the movies and only in the last 20 minutes of those movies.


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## nobleea (Oct 11, 2013)

Don't recall where you're located, but out here 50-60 days is a common time for a house to finally sell.
Getting bridge financing isn't that big of a deal, happens all the time.

And if it doesn't sell, I would keep it listed through the winter. At the right price, there's always a buyer. It's true that spring is the best time to sell, but you never know if the market drops in absolute terms between now and then (or rates go up a fair amount to impact buyers' ability to pay your price).

Don't rent the house. Asking for trouble.

As for the furniture, I would move most of it out. You really only need some living room furniture, a dining table, and a master bed set up. The other rooms can be empty. That's what's commonly done in staging.


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## kork (Jun 9, 2012)

All good advice, thank-you. 



OptsyEagle said:


> You were planning on using your TFSA investments to pay for a home in December, yet you left the money invested in volatile investments. Why would you do that? Hopefully you are still not relying on hope as opposed to common sense and have now liquidated the investment you need and put it into guaranteed investments.
> 
> If you haven't then I certainly can't help you. Good luck with your hope. No wonder you are not sleeping well. It's because down deep in you how well hope works out. Only in the movies and only in the last 20 minutes of those movies.


I'm trying to let logic dictate this, but it's an emotional ride. And hindsight is always 20/20.

For clarity, we weren't planning on using our TFSA for a new home and we've been looking for 4 years on and off. We've been going back and forth between "renovate vs. buy another" and we've been saving towards the renovation. Our TFSA's were always going to be a retirement investment. However, we found the right home and we jumped on it. But it was more than we were expecting to spend. However, between the $60k in savings and the $170k in TFSA's, we figured we could pretty easily transition with minimal effort. But this home snuck up on us and we fell in love with it. Boom, saw it, made an offer that day. Whirlwind of emotions and now we've listed our home. All in the span of a week and a bit.

But enough things happened quickly and until the deal was firm (the home we bought was already sold to another buyer and they had 48 hours to come firm on their deal) we was going to cash in the TFSA's. But then wham! 900 point drop. Silly me. Maybe it'll recover the next day? Nope! 400 more the next day! Now we're down almost $10k in 2 days. Okay. So on top of BUYING A HOME which was taking most of our time and energy, I wasn't paying much attention to the market those two days. So the TFSA's dropped nearly $8k in value in 2 days right while we were buying a home and getting ready to sell ours. I also didn't want to liquidate our entire TFSA because I didn't know what the rules were if we wanted to recontribute.

On top of work, kids, etc, thanksgiving, sickness through the household, it's a lot to take in and potentially forget some minor details.

But this isn't a sad story. I like to think that I'm not riding on hope too much. Hope would have made things better, but we're not in dire straights by any measuring. But I do "hope" that our home sells. I also hope it sells for a decent price. If not.. well that sucks. I suspect that most people hope for these things though.

Anyways, our worst case scenario (currently). Our current home doesn't sell and it's a burden until it does. We borrow from our existing equity for the down payment (since we don't want to liquidate our TFSA which had recently dropped). I'm not trying to time markets, never have. But if I can borrow money relatively cheap rather than using my own that just plummeted, then why should I not do so?

We can easily afford this transition. Zero concern there. I just don't like not knowing and I don't want to make a misstep that will cost (another) $10k in the wrong direction because of poor decisions.


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## AltaRed (Jun 8, 2009)

I agree with posts so far.

1. Never should have had house money in equities if it was going to be needed within 1-2 years.
2. It is no big deal re-financing current mortgage (7.5 months left only). Lender doesn't like lending at that rate any more anyway. Financing costs would occur anyway with new house and title.
3. Never rent over the short term. Can't get a quality tenant with a house up for sale AND as JAG said, a house suitable for a principal residence does not make a profitable investment property.
4. Bridge (or HELOC) financing is done all the time. I used a HELOC to cover the gap between houses in 2012 because I didn't yet have a contract with possession date on the house being sold.
5. 3.25% is a great mortgage rate. Lock it in. If going for longer than 1 yr term, be sure to have good pre-payment and payment top up privileges where, if equity markets improve, can be the source to buy down mortgage.

You are trying to finesse way too much to end up with the 100% optimum scenario. That just won't happen except by wild random chance. Roll with what you have. You seem to be getting good traffic on existing home. Take the feedback your realtor gets for you from showings to heart and adjust if need be. Price may be too high but that only becomes evident after a good 30 days on the market or so. Don't get hung up on an empty house if that should occur. Buyer may see that as an opportunity to bargain lower but you may have to go lower anyway if no suitable offer comes in 30 day (getting too close to Christmas anyway for much traffic in December).

Added: Just saw your reply. There is nothing to sweat. Just qualify/arrange a new mortgage that is big enough to cover your needs without touching your TFSA and assuming you may need to drop listing price 5-10% on existing property. You can always take less mortgage at the last minute if things fall into place, or use mortgage payment top ups, e.g. bi-weekly, or 10% annual buy down mortgage option a year from now to re-align everything.


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## kork (Jun 9, 2012)

nobleea said:


> Don't recall where you're located, but out here 50-60 days is a common time for a house to finally sell.
> Getting bridge financing isn't that big of a deal, happens all the time.
> 
> And if it doesn't sell, I would keep it listed through the winter. At the right price, there's always a buyer. It's true that spring is the best time to sell, but you never know if the market drops in absolute terms between now and then (or rates go up a fair amount to impact buyers' ability to pay your price).
> ...


Average where we are is 30 days and within 2-3% of asking price. We're at day #7 and today is another tailspin of a day in the markets.

Bridge financing is fine, but we need a firm offer on our home to get it.

Good advice on the furniture (You too Just a Guy). That makes me feel much better. I was trying to figure out how to furnish two homes!

And that's two votes for DON'T RENT so I can take that off the table.

Finding clarify from the brilliant minds here! Thank-you!


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## AltaRed (Jun 8, 2009)

Quit worrying about the equity markets. That isn't a source of funds at this time for reasons already mentioned.


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## kork (Jun 9, 2012)

AltaRed said:


> I agree with posts so far.
> 
> 1. Never should have had house money in equities if it was going to be needed within 1-2 years.
> 2. It is no big deal re-financing current mortgage (7.5 months left only). Lender doesn't like lending at that rate any more anyway. Financing costs would occur anyway with new house and title.
> ...


3 votes for don't rent! YAY!

TFSA became house money 2 weeks ago when we needed to have a 20% downpayment and had not sold our current home. If our home sells, we don't need to come up with $150k downpayment for new home. But as of today, we do so the 4.2% Line of Credit is the key I think. We could pay it off within the year without the TFSA anyways.

I appreciate the clarity on the 100% optimum scenario. That's exactly what I'm going for. Sell TFSA at the top of the market, sell the existing home for list price, keep my 2.29% mortgage and enjoy our new home. Time to adjust expectations.


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## peterk (May 16, 2010)

Sounds like your TFSA portfolio is down a little bit.

S&P 500 is only down 6%, TSX is only down 7%. It's unclear why you would feel too put-out by having to sell at this very moment, other than a crazy, fictional notion that you just "lost" ~$10,000. All in all, it's a perfectly great time to sell if you need the money to bridge to the second house. Come back complaining about bad timing if your portfolio drops another 30% before November and then I'll sympathize. :tongue:


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## kork (Jun 9, 2012)

peterk said:


> Sounds like your TFSA portfolio is down a little bit.
> 
> S&P 500 is only down 6%, TSX is only down 7%. It's unclear why you would feel too put-out by having to sell at this very moment, other than a crazy, fictional notion that you just "lost" ~$10,000. All in all, it's a perfectly great time to sell if you need the money to bridge to the second house. Come back complaining about bad timing if your portfolio drops another 30% before November and then I'll sympathize. :tongue:


Interesting observation.

I suppose the reason is this. If I had $50 in my bank account and then it was $45, I'd feel like I lost $5. Whether that initial $50 came from me working, selling something, etc, I feel that once I "had it" i should be able to "keep it" if I was about to use it.

2 weeks ago, I "had" $175k and now I have $165k. It feels like I've lost $10k because of what it was.

But it only feels that way because I was just about to use it! Market fluctuations don't tend to sway me in previous years. The last correction put some stuff on sale. Yay! But this time around, I frown because I was just about to liquidate and now it's making more sense to find the funds through other means.

That's the psychology of it in my head anyways, I think?


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## peterk (May 16, 2010)

kork said:


> 2 weeks ago, I "had" $175k and now I have $165k. It feels like I've lost $10k because of what it was.
> .
> .
> That's the psychology of it in my head anyways, I think?


Ya well - you only put in $115k anyways - Don't sweat it.  If it's all the same to you with the HELOC or TFSA then no big deal, but I wouldn't be changing my plans and taking out an extra $150k loan just because I didn't quite sell at "peak TFSA" last month...


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## AltaRed (Jun 8, 2009)

The stock is yours, but it's never 'yours' in currency form until you crystallize it into currency. No different than any other real item like a vehicle. Its value in currency form is not truly known until someone hands over actual currency.

So I tend to agree it doesn't really matter what the TFSA was worth last month.


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## james4beach (Nov 15, 2012)

Yup, stocks are basically at all time highs today (both US and Canada), just within a few % of their peak values. It would not be a mistake to sell stocks now, if you need the money.


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## kork (Jun 9, 2012)

Very interesting. My mind is almost exploding with the change of perception... Hmmm...


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## AltaRed (Jun 8, 2009)

kork said:


> Very interesting. My mind is almost exploding with the change of perception... Hmmm...


James is basically correct. Look at 1, 2 and 3 year charts. What happens month to month is really just noise..... short of at least a 10% correction, and a 20% or so bear market.


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## kork (Jun 9, 2012)

So perhaps the smart move is to sell $100k worth of TFSA's which will bring us up to $160k savings. That will cover the downpayment of the new home plus a bit for closing costs, etc. That also keeps us off the additional LOC. Or, if we sell the home, that's enough to keep us in our current mortgage.

The remaining can sit in the TFSA and "do what it's been doing" and then we're back to the plan of TFSA's are for retirement...


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## kork (Jun 9, 2012)

Or... Do I sell $70k of my TFSA's (balanced index funds), and then $30k of CNR and TD in my unregistered that have both done very well since I purchased them? TD is up 30% and CNR is up 10%. When the time comes, I buy them again when on sale (like my CU seems to be these days)...

Please bear with me, this is the first time I've actually ever sold anything to do something with it. I've always just been accumulating...


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## nobleea (Oct 11, 2013)

kork said:


> Or... Do I sell $70k of my TFSA's (balanced index funds), and then $30k of CNR and TD in my unregistered that have both done very well since I purchased them? TD is up 30% and CNR is up 10%. When the time comes, I buy them again when on sale (like my CU seems to be these days)...
> 
> Please bear with me, this is the first time I've actually ever sold anything to do something with it. I've always just been accumulating...


I would sell your losers in the non registered fund. Harvest those capital losses. Hold off on paying capital gains tax for as long as possible.


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## Italicum (Feb 10, 2017)

"We can easily afford this transition. Zero concern there. I just don't like not knowing and I don't want to make a misstep that will cost (another) $10k in the wrong direction because of poor decisions."

Plenty of good advice in the previous posts. I would like to contribute a thought about the sentence above: in addition to considering the pros and cons of the various scenarios from a purely financial perspective, i suggest you observe what appears to be a level of anxiety about not knowing what the future will hold. Well, as obvious as this may sound, the mind almost always wants to know, to establish certainty. When it can't often anxiety arises. This is an impossible task in this case, because those future scenarios are not here...... They are in the future (e.g. Selling the house when and for how much). I suggest trying to 'rest the mind on the unknown', as they say. Best of luck.


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## Just a Guy (Mar 27, 2012)

I’m really not sure why you are so hung up on paying off your mortgage...if the rates were higher, I would understand but the reality is mortgages are cheap money. 

You could buy a bank stock and make more off the dividend alone, even with taxes, than you currently pay back to them with your mortgage.

If it were me, I’d just mortgage the new place and leave your investments to grow. When renewal time comes, if 5e interest rate increases, then pay it down with your investments. 

I’ve personally lived debt free at one point in my life and I’ve regretted it ever since I learned how to properly use debt as a tool. My net worth increased dramatically after that, whereas it grew very slowly while living debt free.


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## OnlyMyOpinion (Sep 1, 2013)

Also, re: _a) Take the house off the market and wait till spring. List and hopefully sell when the market is buzzing again. b) Keep the home listed through the winter?_

It is not necessarily the case that spring is a better time to sell. There may be more people with 'spring fever' looking, but there are a lot of tire kickers and also a lot more listings.

Heading into the end of the year, people looking tend to be doing so because they 'need' to be looking for various reasons. There are also fewer listings - less competition.

Also, expectations are that interest rates may continue their slow creep upward. That will motivate some to shop now to take advantage of lower rates.


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## kork (Jun 9, 2012)

Just a Guy said:


> I’m really not sure why you are so hung up on paying off your mortgage...if the rates were higher, I would understand but the reality is mortgages are cheap money.


I struggle with this as well. The short answer is because we need to have a 20% downpayment for our new home by mid December. If our home is a firm sale by then, then that provides the downpayment (and then some).

But as it sits right now, we haven't sold it so I need to consider what we do if we don't. Renting our home is now off the table (which is good).

The next question is "where does the downpayment money come from?" 

Does it come from liquidating investments? TFSAs/Non-registered funds? If this is the case, then when is the best time to sell and get that money lined up? Sit tight and wait, or sell now while I can (recognizing it may be down a lot more by our closing date?) or does it come from our LOC at 4.2%. This would be paid off once our existing home sells and we'd simply be sitting with the balance of our mortgage.

So as it sits right now, our mortgage is about $140k. Our new mortgage with a 20% downpayment will be $544k. Our currently mortgage payments are $800/month but we've been doubling up. With the new place, do we make monthly payments of $3k and when we sell our current home, put the profit of the sale of our home into investments? At that point, we'll have well over $1 million in TFSA's/RRSP's and non-registered investments. But we'll also be much further away from having a paid off home (which allows us to live on lower income which has a psychological mellow effect to it).


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## kork (Jun 9, 2012)

Italicum said:


> "We can easily afford this transition. Zero concern there. I just don't like not knowing and I don't want to make a misstep that will cost (another) $10k in the wrong direction because of poor decisions."
> 
> Plenty of good advice in the previous posts. I would like to contribute a thought about the sentence above: in addition to considering the pros and cons of the various scenarios from a purely financial perspective, i suggest you observe what appears to be a level of anxiety about not knowing what the future will hold. Well, as obvious as this may sound, the mind almost always wants to know, to establish certainty. When it can't often anxiety arises. This is an impossible task in this case, because those future scenarios are not here...... They are in the future (e.g. Selling the house when and for how much). I suggest trying to 'rest the mind on the unknown', as they say. Best of luck.


As it turns out, I was diagnosed with with generalized anxiety disorder while I was in Post Grad. The best way I can describe it to someone is repeatedly trying to solve an unsolvable problem by approaching it with brute force and a minor variation each time.

repeat
repeat
repeat
repeat
repeat...

It's exhausting, but can also be a strength. Eventually, problems get solved.


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## james4beach (Nov 15, 2012)

kork said:


> It's exhausting, but can also be a strength. Eventually, problems get solved.


Investing can be frustrating from this perspective, as it tempts people to micro-optimize.

In reality, you can't really optimize this stuff much anyway because there are so many unknowns. Most of our outcomes come down to chance (though people often misattribute the outcomes to their intelligence or skill).

All you can really do is stick with some general best practices: spend less than you earn, do your budgeting and expense tracking, decide on and stick with an asset allocation, try to minimize debt, etc.

If you take 10 people, who each follows the basic best practices, but then pursues various types of investing... they can have dramatically different outcomes. That's the randomness and things beyond your power at work, not personal decisions.


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## Just a Guy (Mar 27, 2012)

kork said:


> The next question is "where does the downpayment money come from?"


This is a VERY common scenario, banks face it all the time. The solution is called bridge financing. You have plenty of equity built up, they’ll take the old house as collateral for a short period. When you sell everything is balanced out.


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## Italicum (Feb 10, 2017)

kork said:


> As it turns out, I was diagnosed with with generalized anxiety disorder while I was in Post Grad. The best way I can describe it to someone is repeatedly trying to solve an unsolvable problem by approaching it with brute force and a minor variation each time.
> 
> repeat
> repeat
> ...


I am familiar with this disorder, as my son was diagnosed with it years ago. I suggest that there are less axhausting alternatives to brute force and it is entirely possible, of course, that you aware of them. One is meditation and mindfulness-based stress reduction.

I am hoping these comments are not seen as being out of place in a forum like this and i don't think they are. We all know how central emotions and human tendencies like greed and fear can be in shaping investment behavior. Awareness and management of these can only be healthy in our lives, financial and otherwise.


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## Italicum (Feb 10, 2017)

..and no, i am not implying that you are acting out of greed or fear. I am using them as examples of emotional states that can heavily influence our investment behaviour, much like generalized anxiety disorder can.


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## nobleea (Oct 11, 2013)

kork said:


> I struggle with this as well. The short answer is because we need to have a 20% downpayment for our new home by mid December. If our home is a firm sale by then, then that provides the downpayment (and then some).


What do you mean by this? You need your 20% down on the new place presumably before you move in. But you won't get any money from your current house sale until you move out. Unless you are planning on moving somewhere in the interim, you're current house is going to provide no downpayment funds for the new house. Maybe you mean bridge financing is easier to obtain with an unconditional sale document? But you're still borrowing the money short term.


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## lonewolf :) (Sep 13, 2016)

Just a Guy said:


> Next, there is nothing wrong with selling an empty home. In fact, the place will look larger empty, and you were complaining it was small, so that’s a good thing. If you’re really worried, you could call a staging company, but I wouldn’t.


 JAG interesting would it not be good to have someone come in make sure the grass is cut, the cobwebs @ the front entrance are gone, windows clean, all the light bulbs working etc when the house is on the market ?


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## Just a Guy (Mar 27, 2012)

Lone wolf, maintenance isn’t the same thing as not having furniture inside.


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## lonewolf :) (Sep 13, 2016)

True


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## kork (Jun 9, 2012)

nobleea said:


> What do you mean by this? You need your 20% down on the new place presumably before you move in. But you won't get any money from your current house sale until you move out. Unless you are planning on moving somewhere in the interim, you're current house is going to provide no downpayment funds for the new house. Maybe you mean bridge financing is easier to obtain with an unconditional sale document? But you're still borrowing the money short term.


For a "second home" that's not a high ratio mortgage, I need to have 20% of downpayment, or $137,000. That brings the mortgage down to $544,000. The $137,000 is able to come from my Home Equity Line of Credit which is the balance of my initial mortgage minus what I've paid towards it. My mortgage 5 years ago was $240k. It's now $140k. That's $100k of quickly accessible funds.

So $100k at 4.2% (which can be paid off at any time) plus the $60k we have in savings could bridge the gap if we don't sell our existing home.

In order to get actual bridge financing, we need to have an actual firmed up sale of our existing home.

https://www.rbcroyalbank.com/mortgages/bridge-financing.html

_"To be eligible for a bridge loan, a firm sale agreement must be in place on your existing home."_

So I'm not sure what the actual difference is between accessing the funds from my LOC to bridge the financing vs. getting a bridge loan?


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## OptsyEagle (Nov 29, 2009)

I am a little confused on what you are actually planning on doing above, specifically this part:



> For a "second home" that's not a high ratio mortgage, I need to have 20% of downpayment, or $137,000. That brings the mortgage down to $544,000. The $137,000 is able to come from my Home Equity Line of Credit which is the balance of my initial mortgage minus what I've paid towards it. My mortgage 5 years ago was $240k. It's now $140k. That's $100k of quickly accessible funds.


It sounds like you had a HELOC of $240K and have paid down $100K and are planning on using that $100K for the new home, but you also say that the $137K is able to come from that HELOC, so it is confusing to me.

Anyway, when I bought my last home I did what you are doing. I got a HELOC on my place for sale and got preapproved for a HELOC on the new house I would buy. 65% loan to value, if I recall. Didn't matter about interest rates because I planned to and did pay it all off when the game was over. In any event, I carried both for a few months and then my lawyer sent the cash to the bank to pay off the HELOC on the house I sold, at closing, and I took the remainder cash and paid off the HELOC on the new house I was living in at the time. Easy, peasy. Now I had no debt on my older home before I decided to play this switch houses game so perhaps that made it possible, but I can't see why you cannot do the same thing. You do have to carry the interest on it all until the final home closes, but you know all that and it sounds like that is not the problem...just an annoyance. As I said, I did what you did a couple years ago. Not sure I want to ever do it again, but that is how I did it.

I should point out that my new home was only about $10,000 more expensive then my older home, so that made the difference about $40,000 when you add in realtor fees, legal fees, moving costs and renovations and new furniture and niknaks and dohickees and thingamajigs and, this and that, and those, and a couple of them, and...did I mention I was married. I was in charge of the money and she was in charge of reinvigorating the economy.


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## kork (Jun 9, 2012)

Okay, so I think I'm getting closer to a conclusion.

I need to separate the properties from one another mentally. My 2.29% loan was what I was trying to keep. To do so, I'd need to sell our current home before our closing date.

But the reality is that the 2.29% will only be good for a few months (it's up June, 2019) and it would only be good for about $140k or so.

So moving forward, I'll deal with both homes on their own. I'll get the mortgage for $537k and put $144k down on it. That $144k will come from savings and my LOC at 4.2%. No need to touch TFSA's.

Once the house sells, I'll pay off the LOC. Could be tomorrow, could be 6 months... Whatever. Hoping for sooner, but if not, it's not the end of the world. The remaining money, I'll invest in my non-registered account (likely VCN and a few blue chip dividend paying stocks) and then rebalance my other non-registered funds to bump out the Canadian ETF's and keep a balanced portfolio between US, CAD, International and some bonds. Couch Potato balanced across TFSA's, RRSP's and non-registered investments.

I can get a 4 year fixed mortgage at 3.59% on $537k. I could get a 3-year at 3.49%. I'm leaning towards the 3.59% rate for 4 years. It's flexible, allows me to top up payments and other features.

So what this does is solve the need for me to sell my home before we move into the new one.

The only downside is that we'll have a beefy $2700/month mortgage payment. But we're debt free otherwise and we've already been doubling up our $800/mortgage and have a monthly contribution to our investments. So it's a little bit of reshuffling. That's all. This also means that we'll have over $1 million in investments. At 40 years old, we can likely just "stop" investing and let it ride for a couple decades. Keep an emergency fund of $50k in cash in case I lose my job or whatever and not be in a position of trying to take money from my TFSA if markets are down (like they are this month).

Life's little lessons are hidden all over the place!

This also allows me to care much less about my TFSA (It's on sale season again, yay!) and trying to use them to make up the balance of the mortgages to stay in my 2.29% rate to finish the term to the end.

If this is flawed, please poke holes!


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## Just a Guy (Mar 27, 2012)

I’ve arranged bridge financing without a firm offer on the old house, happens all the time if you have equity in your current home. Talk to the bank as opposed to reading things on-line. The stuff posted on-line is always worst case scenario, they make exceptions all the time. Think of the posted mortgage rates, I don’t know anyone who pays those, the bank always offers discounts for good clients.


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## kork (Jun 9, 2012)

Okay, so an update to this.

We sold our home for near asking price. It's still pending conditions being dropped, but we're hopeful.

Overall, I'm thinking the best move is to still lock into a new mortgage with a big beefy mortgage rather than trying to pay it down.

The rates I've been offered are:
3.49% Fixed (3 years)
3.59% Fixed (4 years)
3.05% Variable (5 years)

With the recent BOC's decision to increase rates today and seemingly aggressively over the next while to a possible 3%, I think fixed wold be the way to go (since I expect the 3.05% to jump to 3.3% very, very shortly.)

So we sell the house for $575k - realtor fees = $550k. Outstanding mortgage is $140k so that gives us $410k to do "whatever" with.

$140k of that will go towards the downpayment of the new home (20%). So that brings us to $270k leftover to go in the bank. Normally, this would go right towards the new home as equity... but... is that the smartest move given the interest rates I can lock in for?

So what to do with that $270k? Put it back into the mortgage or buy a stockpile of VCN in our unregistered funds and rebalance with our registered investments. Should we spread the purchases out for some dollar cost averaging? Or if we should do it all at once?

We also plan to keep a $50k emergency fund still. Each month, we could double up the payment on our mortgage or we could keep adding to our unregistered funds. So essentially, anything over $50k in our emergency fund each month pays off mortgage or gets invested.

I'm cautious of the 9 year Bull market run and continuing to pile money into ETF's and individual blue chip stocks. 

Something to note, in 2 months, after the sale closes, we'll have over $1 million in RRSP's, TFSA's and Unregistered investments. All couch potato. Happy 40th birthday to me!

Does this plan make sense, or does this plan suck?


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## AltaRed (Jun 8, 2009)

Best I can tell, you would be taking the new large mortgage out primarily to finance the new house, with the surplus cash from the sale of the old house being used to then make investments, in that sequence. That means none of the interest on the mortgage on the new house will be deductible for investment purposes. So you are going to have to make 3.X% after tax with a 100% probability of success on your investments to break even. Any less return, or less than 100% probability, and you are losing money. If there is only a 50% probability of making that return over the next 5 years, you then need to make ~7% after tax return to break even.

Personally, I would only take out as much mortgage as I needed to cover the new house, and bridge finance any time discrepancy between the time you heed the funds for the new house and receipt of proceeds from the sale of the old house. In essence, I would NOT borrow a cent to finance investments. That is just asking for trouble in the current business environment of increasing interest rates and the potentially imminent beginnings of a bear market. You would be much better off, if you want to borrow to invest, to wait until the bear market, when it comes, to bottom out and then specifically borrow via HELOC money to invest in securities at the bottom of the market, and being able to deduct the interest on the HELOC for doing so.

IMNSHO, what you are planning to do is the most wrong thing you could be doing at the wrong time.


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## Mechanic (Oct 29, 2013)

I would be putting all the money into the new house and keeping my payments the same but with a shorter term. The last several years of my mortgage, that's how I did it, as well I used the variable terms. As previously mentioned, putting it into the new place and reducing the borrowed amount will be a guaranteed return of whatever the interest rate is.


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## kork (Jun 9, 2012)

Great feedback. I'm actually on the fence about it all. Recalling at the beginning of the thread, my goal was to hammer into the new mortgage with my TFSA's to keep the mortgage the same. But another member suggested "why are you trying hard to pay down your mortgage? Money is cheap!"

But I have the flexibility to do it both ways so looking for the best option.


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## Just a Guy (Mar 27, 2012)

Ahh, but when I said that I was speaking from the background of an experienced investor. Also, I have a very conservative investment strategy and have proven it works over decades of up and down markets. While I still think investing is better than saving, it doesn’t mean you should take half a million and start gambling on the market just as it’s set to collapse. 

Personally I’d pay down the property and set up a heloc which I could draw upon if I found investment opportunities that come up. I use a heloc all the time to buy properties until I can finance them on their own.


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## kork (Jun 9, 2012)

Just a Guy said:


> Ahh, but when I said that I was speaking from the background of an experienced investor. Also, I have a very conservative investment strategy and have proven it works over decades of up and down markets. While I still think investing is better than saving, it doesn’t mean you should take half a million and start gambling on the market just as it’s set to collapse.
> 
> Personally I’d pay down the property and set up a heloc which I could draw upon if I found investment opportunities that come up. I use a heloc all the time to buy properties until I can finance them on their own.


<thumbs up> Thank you for the clarification. I'm not seasoned, I'm just really good at saving and enjoying a near decade long bull market. The caution in me is exactly as you said. Is right now the time to do this on the potential eve of a market downturn? Has it already begun? That's actually why there's the temptation to liquidate my entire TFSA and put it into a guaranteed 3.49% return (the new mortgage).


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## AlwaysLearning (Dec 8, 2017)

I think the direction you received is good.

One further point I would make though is that you can likely do better than the interest rates you quoted. Personally I have always got the best broker rate then went to my bank of choice where they would match it or at least get very close with better terms (and if they did not I would of course go with the broker rate).

You also are in a position where you do not need a fixed rate. Variable is an option that historically would pay off (although maybe not at the rate delta you quoted).

I would attempt do a bit more work on your rate before you sign anything.


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## peterk (May 16, 2010)

Just a Guy said:


> Personally I’d pay down the property and set up a heloc which I could draw upon if I found investment opportunities that come up.


Ya kork, all things being equal (i.e. amount borrowed, amount invested and risk exposure) it makes sense to throw all the proceeds from the sale against the new house, have the smallest mortgage you can, and then HELOC new money out for additional investments if you are feeling your total net worth and asset allocation is "too much house" and "not enough investments".


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## Mortgage u/w (Feb 6, 2014)

This is what I would do:

Finance the max you can on the new home. Make sure you opt for a collateral mortgage so that a HELOC can be set up.

Once you settle the sale of your existing home and paid all required fees, I would use the balance to pay down the new mortgage. Remember, the more you borrow, the larger your allowable prepayment amount is. Paying down and keeping the same payments also pays off the mortgage quicker. 

As for the rate, I am one to recommend variable. 3.05% is a good rate however you should easily be able to obtain 2.95%. Even with the BoC rate increase of 25bps, the banks will only follow with 15bps.


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## OptsyEagle (Nov 29, 2009)

If the question is between paying down your mortgage or investing for higher returns then I would say the two are the same. 

Investing requires an ability to set aside your emotions. At times you need what I have heard as intestinal fortitude. I would argue that paying down your debts and preferably having no debt at all, will do wonders for your ability to control your emotions and should provide you with all the intestinal fortitude you should need to go out and get those higher returns on your investment portfolio.

It is one thing to navigate portfolio declines, like the ones we saw after the Tech Wreck and Credit Crisis, both producing declines in value of almost 50%, but can you imagine the investor that had to deal with that, while, at the same time, wallowing in mountains of debt. God forbid his employer was on shaky ground at the same time. That is not a situation that spawns a great investment record.

Pay down your debts. Nothing is sweeter then owing nothing to anyone.


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## Just a Guy (Mar 27, 2012)

I don’t know...

I just renewed a couple of rental mortgages...for every dollar I pay in interest, my principle gets paid down $2. Then I have the cash flow on top of that...

I could be debt free and not earning anything, or I could be in debt and earning way more than I pay...having been in both situations, I prefer using debt as a tool, but it’s not for everyone.


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## kork (Jun 9, 2012)

Thank-you everyone for the advice and feedback. I'm listening to every word and opinion. 

I think I've got the final solution.

We're going to port our current mortgage (Mortgage A) of $140k (fixed at 2.29%) into our new home and ride it out for the next 7.5 months until it's up for renewal. No penalty and get to enjoy the nice low rate right to the end. Since we've got a month of owning both homes, we'll bridge finance the time in between and have a second mortgage (Mortgage B) of $160k (fixed at 3.49% for 3 years) on the new home.

So essentially, we'll have two mortgages on our home. In 7.5 months when Mortgage A is up for renewal, we can decide if we want to lock back in OR if we want to pay it off. By then, perhaps we'll have enough saved up, perhaps we'll draw down from our TFSA's a bit, who knows. That's over 7 months away and I'll start fretting about it as we get closer. 

This allows us to keep all of our investments where they are, adds a second mortgage payment but we've already been doubling up on our mortgage payments anyways so there's no change in monthly cashflow. Easy peasy.

This will allow us to keep an emergency fund which is currently $60k but will go down with closing costs, land transfer tax, new appliances, etc. We'll likely have about $30k leftover and that will become our emergency buffer. And the remainder is in registered and unregistered investments.

Moving forward, we'll likely just save our money until Mortgage A is set to be renewed because at that time, we could very well have saved enough to pay it off or at least a really good chunk of it. I don't like the idea of having two mortgages on a house. That's not what they called it, but that's essentially how it works (as it was explained to me).


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## kork (Jun 9, 2012)

Mortgage u/w said:


> As for the rate, I am one to recommend variable. 3.05% is a good rate however you should easily be able to obtain 2.95%. Even with the BoC rate increase of 25bps, the banks will only follow with 15bps.


My LOC already shows a .25% increase from 4.2 to 4.45 after the rate announcement today. Is this not the same reflection?


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## AltaRed (Jun 8, 2009)

LOCs are priced off prime per the terms of your LOC so yes, it is automatic. Many more factors go into setting mortgage rates, including 2-5 yr bond yields, 2-5 yr GIC rates, etc. Regardless, I am glad you saw the 'light' and did not go through with the 'borrow to invest' idea. That made no sense whatsoever given headwinds in the markets.


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