# Teathering Debts To Mortgage?



## jordan_paul (Jul 1, 2013)

So all the commercials for Manulife's "One" account has got me to thinking about tethering our existing debts (or buying them out) to our mortgage. We bought our house two months ago and our mortgage is at $168 000ish but the mortgage guy at the bank told me I could (forgive my proper lack of term) "draw" up to $217 000. He didn't say when exactly though. What I wanted to do is take our debts:

Student LOC: $25 000 *repayment for both debts is $400 bi weekly
Truck Loan: $23 000

And add them to our mortgage, almost maxing out what I can take from the bank. If I'm thinking about this correctly my bi-weekly payment would go from $362 to $468 which is a $102 dollar difference. Now that we have no more outside debt to repay, I can add the difference to the mortgage every two weeks, which is just around $300. 

So old repayment schedule in a monthly sense:

Mortgage: $724
Loans: +$800 = $1524

To: 
Mortgage: $936

Then I can put the extra money saved ($588) onto the mortgage.





Is this do-able?


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## Mall Guy (Sep 14, 2011)

Must be a Home Line of Credit. Doable, but are there any penalties to be considered, what are the three interest rates, and length of each of the terms. If you don't put the extra money against the mortgage, you will be paying for your truck over your 30 year amortization. So you need to work out if you are saving any interest cost or is it costing you more over the term of the loan. Are you better to off paying off the term loans, then applying the extra cash against the mortgage later.

Gotta crunch the numbers !!!


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## sags (May 15, 2010)

Maybe old fashioned, but I wouldn't recommend anyone tie any other debts to their home.

I know quite a few people who remortgaged frequently to pay off their debts, and they ended up never owning their home. My best friend passed away owing 8 times more on the mortgage on his home than he originally paid for it.

Paying off debt by using a mortgage, reduces the sting of debt, which is a reminder to people of the cost of borrowing to spend.

Crunching numbers........there may be valid reasons to do it.........but in reality I think that few people carry through with their plans to reduce the mortgage with extra payments. 

Life has a way of always getting in the way.

Having said all that..............if you are absolutely a person who can follow a plan, it may make sense. 

How about reducing the amortization schedule a little, thereby paying back the "extra debt" portion of the mortgage faster............but leaving a little of the extra money out of the equation for a savings plan.


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## marina628 (Dec 14, 2010)

I agree with you sags , if things go wrong you can give up the car and pay the student loans late but never put your home at risk.Also I wonder why you would put so much cash down on the house just to get it back in a form of a credit line.


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## YYC (Nov 12, 2012)

Hey, I can maybe offer some personal perspective on this. We actually set up a Manulife one account a couple of years ago. The idea was to bring our entire mortgage into it, but the penalties were way too high, so we ended up just refinancing the max amount we could do without penalty into the Manulife One. The rep told us we could do another 20% the year after, etc until the entire thing was in there. We liked the idea that you could pay as much as you want in any given month as it's basically just a big HELOC, and my self-employed income fluctuates a bit (it fluctuated more back then, which made it more appealing). However, when the next year came around, I called Manulife, and they wanted me to go through another entire application and house appraisal. Given the state of the real estate market, I didn't feel that was a good idea, so we just left the Manulife with the limit as it was. 

Now, on to how we found using it to be. We set up a number of our automated payments to come out of it, including our 'regular' mortgage payment, then paid ourselves into the account each month as they suggest. We still had our PC financial account available as well, but for a time we tried to use the Manulife as our main one. To be blunt, we hated it. Here are the reasons:
- No free bank machine access anymore. With PC, you get free access to CIBC machines
- Deposits are a hassle, you need to use this book of deposit slips and go to an RBC teller (not a machine) where they have set up some sort of arrangement. This means now I needed to get to the bank during actual crappy banking hours. Annoying.
- E-mail money transfers were not supported at the time (I believe they are now)
- The web interface kind of sucks compared to PC
- And finally, and most importantly, we NEVER GOT AHEAD. Living in a 'negative balance' state all the time is stressful. How do you know how much you have to spend? If there's room on the limit, it's easy to spend, whereas a regular bank account goes to $0 and then you can't spend anymore. 

So, what we finally did is move all our monthly payments back to the PC account and completely stopped using the Manulife One. We're treating it just like any other debt now (ie: something to be gotten rid of) and are simply transferring $500 a month to it as a means of slowly paying it off. I wish we hadn't done it in the first place, but live and learn. 

Hope this helps.


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## MoneyGal (Apr 24, 2009)

What everyone else said, esp. Mall Guy. What is the actual benefit to you if you do this? I think it sounds appealing to you because of the lowered monthly payments - but you're just amortizing short-term debt into (much) longer-term debt, while losing the flexibility afforded by shorter-term, diversified debt. It's a little concerning to me that you describe the difference in monthly payments as "savings."


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## jordan_paul (Jul 1, 2013)

MoneyGal said:


> What everyone else said, esp. Mall Guy. What is the actual benefit to you if you do this? I think it sounds appealing to you because of the lowered monthly payments - but you're just amortizing short-term debt into (much) longer-term debt, while losing the flexibility afforded by shorter-term, diversified debt. It's a little concerning to me that you describe the difference in monthly payments as "savings."


Because I can use the extra money "saved" as a prepayment paying off the mortgage in about 13 years saving almost 45k in interest.


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## MoneyGal (Apr 24, 2009)

OK, I got that. I'm sure that's how the salesperson pitched you the idea as well. 

But what's the savings if you pay off the other loans without adding them to your mortgage (either as scheduled or faster), and then direct the amount of those loan payments to the mortgage instead? You could model this under a couple of different interest-rate scenarios. Make sure you include the value of the tax credit you would be losing on the student loan interest in your calculations. 

Also - and I don't mean to sound judgemental, just curious - what is the likelihood that you will follow the plan you've suggested will save you $45k? Is it 100%? Less? You have a relatively significant amount of debt now, although just two sources (student loan and truck loan). What this shows is that you have a tendency to use debt to finance things. Do you think you are going to be willing to live debt-free in the future (apart from the new, consolidated mortgage debt)? 

Finally, there's a psychological impact of debt. One of the things you'd be foregoing is freedom from the student loan debt and the truck debt for many, many years. Would you be happier to have those debts paid off sooner? I wouldn't totally discount the impact of that particular aspect of your plan - I'd at least consider it. 

I totally get that the math "works." That's how that particular product is sold. But IMO it isn't the whole story. Just thoughts for your consideration, or not.


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## Guban (Jul 5, 2011)

I understand that it is pretty common for people to take these consolidation loans, and then proceed to rack up more loans outside of the mortgage, thereby defeating the original point and digging a deeper hole. The math is often fine, but human psychology may undermine what people are trying to do.


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## jordan_paul (Jul 1, 2013)

MoneyGal said:


> *You have a relatively significant amount of debt now, although just two sources (student loan and truck loan). What this shows is that you have a tendency to use debt to finance things*


HAHAHAHAHA, Yep, you're right on the money there. Because at 19 when I bought the truck I should have had $40k in cash to buy it and my wife from 18-24 should have had $100k in the bank to pay for school. 

Give your head a shake.


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## MoneyGal (Apr 24, 2009)

[shrug] People make different choices. It's entirely possible to graduate from university without student loan debt. And 19-year-olds with no money in the bank should possibly not buy $40K trucks. 

You posted on a discussion forum; you may not always like what people post in response - but if you are looking for a consumer spending echo chamber, you may want to reconsider posting here.


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## MRT (Apr 8, 2013)

jordan_paul said:


> HAHAHAHAHA, Yep, you're right on the money there. Because at 19 when I bought the truck I should have had $40k in cash to buy it and my wife from 18-24 should have had $100k in the bank to pay for school.
> 
> Give your head a shake.


I think the point is that buying a 40k truck at age 19 could be considered a dubious financial decision when you don't have anything close to the purchase price in savings. Getting into the habit of financing purchases mostly with debt is a TERRIBLE mindset to adopt.

Your plan is fine, providing:

1. The rates of the debts being consolidated are higher than the mortgage/HELOC rate.
2. You will put EVERY bit of the monthly cash flow savings into the overall debt.
3. You will not incur any additional debts that keep this type of cycle going.

I have seen *countless* clients consolidate debt into their mortgage, only to accumulate further debt later. The reasons are always 'good'...needed a new vehicle, did renos, whatever. This is precisely how people never pay off their mortgages. 

Don't discount the psychological side of things, as MoneyGal alluded to earlier. Math is math, but our emotions often have a funny way of getting in the way...

AFAIK, a Manulife One account still has a $14/mth fee (which is absurd, IMHO). There is virtually *nothing* that can't be done with regular secured line of credit (HELOC) that can be done with Manulife accts. 

I recommend that people keep their mortgage separate from their HELOC. When your mortgage matures, you can find the best rate and transfer it...not so with Manulife One accounts and other combo mortgage/HELOC products, as they are registered on title under a single charge. You have to discharge the whole thing to move any one part of it, and that will cost you.


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## YYC (Nov 12, 2012)

Yeah, the $14/mo fee is a pretty big ripoff.


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## andrewf (Mar 1, 2010)

Also, the rate offered on Manulife One is not particularly attractive. The blended rate on a variable rate mortgage + HELOC would likely be less.


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## supperfly17 (Apr 18, 2012)

jordan_paul said:


> HAHAHAHAHA, Yep, you're right on the money there. Because at 19 when I bought the truck I should have had $40k in cash to buy it and my wife from 18-24 should have had $100k in the bank to pay for school.
> 
> Give your head a shake.


I dont think she meant anything bad about that comment. Was the truck necessary? Was it for business?


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## Four Pillars (Apr 5, 2009)

jordan_paul said:


> HAHAHAHAHA, Yep, you're right on the money there. Because at 19 when I bought the truck I should have had $40k in cash to buy it and my wife from 18-24 should have had $100k in the bank to pay for school.
> 
> Give your head a shake.


This gets my vote for dumbest comment of the year. And he probably has no idea why....


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## crazyjackcsa (Aug 8, 2010)

"jordan_paul, getting advice he doesn't like and acting smug since 2013-06-30"


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## jordan_paul (Jul 1, 2013)

MoneyGal said:


> [shrug] *People make different choices. It's entirely possible to graduate from university without student loan debt*. And 19-year-olds with no money in the bank should possibly not buy $40K trucks.
> 
> You posted on a discussion forum; you may not always like what people post in response - but if you are looking for a consumer spending echo chamber, you may want to reconsider posting here.


If there is I'm not sure how it's possible. My wife managed to pay for 70% of school which I thought was a lot. She worked every summer in factories making half decent money and when she went to school in Kingston she always had a job. She racked up a lot of debt when she went to Northern and she couldn't find a job, and especially when she had to go BC for an unpaid internship.

I bought the truck when I was traveling all over the province for work. I don't care what anyone says you need a reliable vehicle to get to work and when you're up in Detour Lake in the middle of winter and you just got off your 14 day rotation you want to know your truck is going to start when the bus drops you off in Sudbury. You're right, I didn't have 40 grand to throw on a truck, but I had 60% of that in the bank at that time but chose to put 25% down because I didn't want to go without a security blanket in case of emergency's.


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## liquidfinance (Jan 28, 2011)

Guban said:


> I understand that it is pretty common for people to take these consolidation loans, and then proceed to rack up more loans outside of the mortgage, thereby defeating the original point and digging a deeper hole. The math is often fine, but human psychology may undermine what people are trying to do.


I'm semi guilty of this. When I split form a long term girlfriend we had put into the house equally from the start so it was a simple 50/50 split. I would buy her out of the house. Now a year prior I had purchased a wonderful Mercedes AMG which I loved and of course financed by a loan. Guess what I did when I came to remortgage the house? Yep... I put the car onto it to pay off the loan. 

I forget the figures now but at the time the loan was something like £220 a month and conslidating it added around £20 to the mortgage. Of course at the time this seemed to be a no brainer. I was saving £200 a month  Of course looking back this was probably one of the most stupid things I have ever done. That and buying the car in the first place. Depreciation like you wouldn't believe!

So now although I'm debt free other than my mortgage I'm essentially still paying for a car I haven't owned years. Now the £200 a month saving doesn't look quite so smart.


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## andrewf (Mar 1, 2010)

jordan, hopefully the sniping over your saving habits doesn't prevent you from taking the advice. I think it's a good idea to go with a normal mortgage (either variable or fixed) and use a HELOC for the loans. This also has the virtue of keeping the loans separate from your mortgage which can be helpful psychologically in giving you the incentive to pay it down. This depends on what rates you're currently paying. I would stay away from the Manulife product.


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## Toronto.gal (Jan 8, 2010)

jordan_paul said:


> HAHAHAHAHA...*Give your head a shake.*


It's yours that needs the shake Jr. Member.

You just laughed at one of the forum's top contributor, and an expert at that!


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## marina628 (Dec 14, 2010)

After hearing his explanation of his driving so much and in winter I understand why he felt the need to buy a 4x4.


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## jordan_paul (Jul 1, 2013)

marina628 said:


> After hearing his explanation of his driving so much and in winter I understand why he felt the need to buy a 4x4.


That and the fact that I'm a farmer, I do a lot of side jobs and you cant show up at a customers business or home with a 10' bundle of pipe hanging out of a trunk and get taken seriously. I also hunt, and I'd assume it would be hard to throw a moose, all my gear and supplies in a Honda Civic. I do a lot of towing as well and I factor the use of my truck into my bids so I make money off my truck.

***


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## MoneyGal (Apr 24, 2009)

jordan_paul said:


> That and the fact that I'm a farmer, I do a lot of side jobs and you cant show up at a customers business or home with a 10' bundle of pipe hanging out of a trunk and get taken seriously. I also hunt, and I'd assume it would be hard to throw a moose, all my gear and supplies in a Honda Civic. I do a lot of towing as well and I factor the use of my truck into my bids so I make money off my truck.


What advice did I give?


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## Toronto.gal (Jan 8, 2010)

jordan_paul said:


> another rocket that believes someone's post count some how makes them "better" or "smarter"...


I wasn't talking about # of posts. 

Helpful [or not] enters my mind more than "better/smarter".


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## marina628 (Dec 14, 2010)

Moneygal should write a book or try to get on TV


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## MoneyGal (Apr 24, 2009)

:distracted:


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## houska (Feb 6, 2010)

Guys, let's take the temperature down a bit here. Financial matters are often uncomfortable and people are quite sensitive about it. Jordan, first of all, welcome. And congrats on thinking proactively about your finances for the long term. An awful lot of us took a hell of a lot longer that you to get to that point. 

Those of us who know MoneyGal from the past several years recognize that she wasn't being judgmental or critical, any more than a doctor would be if they comment that my blood pressure is a bit on the high side or that my BMI is borderline overweight. She's pointing out an important element, that many people in your situation have consolidated debts only to rack up new ones, starting a never ending cycle. One that the financial industry makes millions if not billions off of each year.

We don't know your situation in detail or your philosophy/mindset. Kudos to you if the reality is "We thoughtfully invested in our futures via borrowing to get the education and vehicle we needed to get us going well, and now a house. We now want to save money in our current phase in life." I think we all respect that. But for your own sake (not anyone else's!) just make sure you build the right mental barriers in your own mind, since it's all too easy to succumb to temptation and after you consolidate your existing debts, rack up new ones. 

From my own perspective, if you are committed to being financially prudent, consolidating all debts into one at a lowest possible rate makes sense - assuming you do follow through on your plan to plow the "savings" into early principal repayments.


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## houska (Feb 6, 2010)

Some numbers to illustrate why the amortization issue really matters. Jordan, these numbers won't quite match yours since I didn't know your details, but they are representative

Option A. $25k student loan, pay off over 5 years, 8% interest rate. $507 monthly payment, total interest paid about $5400
Option B. Loan added to a mortgage as an LOC subaccount, at 3% interest rate. Maintain the $507 payment, paying down extra principal. The LOC is paid off in 4.3 years (versus 5) and the total interest paid is only about $1800. Yay!
Option C. As B, but pay it off (amortize it) over 25 years, like a mortgage. The monthly payment goes down to less than $120, which seems great, but due to the long amortization period, the total interest paid will be $10,600. Boo!

Therefore adding the loan to the mortgage via an LOC makes sense if you can be sure you'll be disciplined enough to follow option B rather than option C.


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## MoneyGal (Apr 24, 2009)

^ What I recommended in Post 8, way back when. 

However, IMO it is important to include the after-tax interest rate paid for the student loan (as your figures are all nominal, but student loan interest gives rise to a tax credit which would be lost if the debt is rolled into a mortgage). 

The true (after-tax) interest rate paid would be (using the numbers in your example) ($5,400*1-15%) or $4,590.


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## houska (Feb 6, 2010)

Right you are, MG. Read but didn't absorb the tax bit. Nevertheless, was personally amazed how big the difference between the 3 options is when running the numbers. Under a pretty wide range of assumptions, converting the student loan has the potential to more than halve the total interest paid (after tax) if very disciplined about it, but runs the risk of actually more than doubling it if not disciplined enough.

Think it brings home (as you have said, but I will restate anyway...) that this isn't a decision about a bit of savings here or there, but whether the OP is confident he and his wife have the mental fortitude to be disciplined or not. The fact he's here asking these questions is a good sign - but there's a whole financial industry out there whose profitability depends on the fact that a majority of his peers are not.


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## MoneyGal (Apr 24, 2009)

"Low monthly payments" is one of the red-flaggiest phrases in the whole English language.


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