# Sold home and purchased new home for less...should I pay for new one in cash??



## mcu (Dec 6, 2009)

I am selling my home next week and just finalized an offer on a new home for a month later. I am purchasing the new home for less than my existing one, but needs extra $$ for renos. After all renos I should have 60-75k left over. I am wondering if I should pay for the new one in cash or take advantage of the low rates.

I was debating to keep a small mortgage or get a HELOC as I wanted to get some money out to invest in some income property. The problem I have with getting a HELOC is that the house is worth much less now than it will be after I am done the renos. For the 100k I put in it will up the value by at least to municipal evaluation which is 200k over my purchase price. Renos will take me 6-9 months so who knows what the rates will be then. 

Any opinions on the best way to handle this?


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## kubatron (Jan 17, 2011)

definitely take advantage of low rates. HELOCs can be had at prime+25 only. 

if your house is worth x now, get 80% of that value.

after renovations, re-appraise it and go for 80% of the new value. voila, new HELOC, higher amount.


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## I'm Howard (Oct 13, 2010)

Pay for new one in cash, do all the Renos, then take loan and invest, interest is now Tax deductible.


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## mcu (Dec 6, 2009)

The other idea I had was trying to get municipal evaluator to come over and see how bad it looks before the renos and try to drop the municipal evaluation. This way my tax bill would hopefully drop 1-1.5k/year. Only thing if I do that will that affect my resale value if ever I sold in 5 years and the max value they would give me on my HELOC?


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## kcowan (Jul 1, 2010)

Getting you taxes lowered will take 6 months. The improvements will need a building permit so you might find it is not worth it. Get the HELOC for the current tax value.


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## mcu (Dec 6, 2009)

yes that makes sense, but could I really get a HELOC now and one after the renos? I guess it will cost me double in notary fees though


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## GeniusBoy27 (Jun 11, 2010)

Sorry, could we get some hard numbers (roughly speaking) on purchase price? And which city/province, we're talking about? 

Why do you need a bigger HELOC after the renovation? Are you doing the Smith Maneuver?

It never hurts to get MPAC (if you're in Ontario) to reassess. Take the pictures now, send in your selling price (which should be below market value).

My experience is that MPAC doesn't show up at your door. However, it will take them a while to get around to do anything about it (it took me 5 months on my principal property), and if you're in Ontario, you're going have to wait until next year to do it. Having said that, it's saving me close to $2.5 K/year to have mailed in the evidence, because my selling price was way below market value for my area. It doesn't hurt to do it, and it really literally took me 15 minutes.


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## mcu (Dec 6, 2009)

Purchase price is 560k and municipal evaluation is 780k. I am going to need to dump in about 100k of renos though. Taxes now including municipal and school are $6900/yr. I am in Quebec
Things in the area are selling for 1.25 over evaluation according to sold compareables in the mls over the past two years.


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## GeniusBoy27 (Jun 11, 2010)

kubatron said:


> definitely take advantage of low rates. HELOCs can be had at prime+25 only.
> 
> if your house is worth x now, get 80% of that value.
> 
> after renovations, re-appraise it and go for 80% of the new value. voila, new HELOC, higher amount.


Kubatron:

Where are you seeing prime + 0.25% presently?


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## mcu (Dec 6, 2009)

One more thing...after purchase price and renos I will have about 60-70k left over. I have a 65k balance on a Heloc against a condo I own to buy a small rental property. I know the interest is tax deductible. Would you pay this off or no reason to because you can deduct the interest?


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## andrewf (Mar 1, 2010)

You could also buy your house with cash, then take a variable rate mortgage for the downpayment on your investment property. The interest on the mortgage is tax deductible, and the rate for a closed variable rate mortgage is lower than a HELOC (up to 1.9% spread between prime+1 on HELOC, and prime-0.9 on mortgage). You can capitalize the interest by paying the mortgage with a HELOC.

If you're careful about which borrower (edit: lender) you use, reappraising your property post-reno should not be a problem.


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## GeniusBoy27 (Jun 11, 2010)

I agree with Andrew on this. His approach is quite sensible to maximize your benefit.


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## K-133 (Apr 30, 2010)

GeniusBoy27 said:


> I agree with Andrew on this. His approach is quite sensible to maximize your benefit.


Diddo.


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## Cal (Jun 17, 2009)

mcu said:


> I am selling my home next week and just finalized an offer on a new home for a month later. I am purchasing the new home for less than my existing one, but needs extra $$ for renos. After all renos I should have 60-75k left over. I am wondering if I should pay for the new one in cash or take advantage of the low rates.
> 
> I was debating to keep a small mortgage or get a HELOC as I wanted to get some money out to invest in some income property. The problem I have with getting a HELOC is that the house is worth much less now than it will be after I am done the renos. For the 100k I put in it will up the value by at least to municipal evaluation which is 200k over my purchase price. Renos will take me 6-9 months so who knows what the rates will be then.
> 
> Any opinions on the best way to handle this?


Sorry if I missed it elsewhere...but where are you located?/looking for investment property?


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## mcu (Dec 6, 2009)

i am located in Montreal. I am a bit confused on something though. I bought a rental property in 2010 and took the downpayment against a HELOC on another property I own. I know this interest in tax deductible, but at 50% right? So if I am paying prime plus 1% (4%) on 65k now and earning 1.25% on 65k I have left over from the sale of my property, am I not coming out a loser?


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## mcu (Dec 6, 2009)

anyone on my last comment?


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## Berubeland (Sep 6, 2009)

The math doesn't lie, unless you find a more profitable use of funds, it will pay you to pay off the mortgage... with a caveat which is any possible prepayment penalty which would erode your "returns" in which case just pay off as much as possible without incurring the penalty.


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## dogcom (May 23, 2009)

I am now in the boat where I could change my mortgage to an investment and write off the interest once I am in my new home in 2 months. I have 4 years left so I do have to look at the penalty before I pay it off. I am really busy right now so for the moment I told my bank to just have the lawyer pull everything over to the new house and then I will take stock of it there. But maybe I will visit this issue again in a month and pay it off so I will see about that.

I don't however want to just invest it in the stock market or housing market except my own house because I just feel prices seem to high to take that risk with borrowed money. It is a good position to be in though, but it does require a lot of thought.


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## balexis (Apr 4, 2009)

mcu said:


> I know this interest in tax deductible, but at 50% right?


If the rental property you bought is 100% for rental, I believe 100% of the interests on the HELOC (for downpayment) and mortgage are deductible.

Not that it would change much the conclusion of your maths (4% deductible vs 1.25% taxable)...


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