# Line of credit or mortgage ?



## AMABILE (Apr 3, 2009)

My house is valued @ 1.5 million with no mortgage.
I want to downsize , buy first, then take my time to sell.
I have 500k cash for a new 1 million $ property.
Which is preferable- 500k line of credit or an open mortgage ?


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## Money172375 (Jun 29, 2018)

LOC will have a much lower rate and more flexibility. Don’t think I ever sold a open mortgage in 20 years


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

Not sure what you mean by open mortgage. Can you specify?
Given your LTV, I would definitely recommend a HELOC if you need the flexibility or a variable rate mortgage.


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## AMABILE (Apr 3, 2009)

An *open mortgage* is a *mortgage* that permits repayment of the principal amount at any time, without penalty. In an *open mortgage* repayment terms are more flexible than a closed *mortgage*, which do not usually allow for prepayment without penalty.


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

AMABILE said:


> An *open mortgage* is a *mortgage* that permits repayment of the principal amount at any time, without penalty. In an *open mortgage* repayment terms are more flexible than a closed *mortgage*, which do not usually allow for prepayment without penalty.


So why would you consider an open mortgage? Are you planning to pay if off in the short term?

If its just for the flexibility, know that the rate is a lot higher than a fixed mortgage. Also, most fixed mortgages offer benefits to pay down your mortgage penalty free on a yearly basis, usually up to 20% of the original loan amount.

On a HELOC, as long as you stick with an LOC, there too you have the benefit to repay penalty free but the added flexibility to reborrow whenever you need to. Open or Closed mortgages do not offer the option to reborrow.


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## AMABILE (Apr 3, 2009)

I would pay it off as soon as i sold my present house.


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

AMABILE said:


> I would pay it off as soon as i sold my present house.


In that case, I would get a HELOC on the new property and not the one you are planning to sell.

Two reasons:
1- you will incur legal fees; 1 to register and 1 to discharge when you sell
2- the HELOC is a good product to keep long term and always available if ever you need it. 
_2b- as a bonus, it also prevents title fraud. Having a collateral on title deters potential fraudsters._


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## AMABILE (Apr 3, 2009)

^^^^ yes , thanks for your input.
HELOC is the way to go but i thought
it needed to be on the old property ( not the new )


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## Davidsonman (Jul 6, 2020)

Of course, on the old property. After all, with a HELOC, you take out a loan against the available equity in your home, and the home is used as collateral for the line of credit. You wouldn't be able to use the new house as collateral because you paid off the full value of it. I think this is the best way to buy your own property. A regular revolving line of credit I think would be fine to be able to spend the extra money. It's like borrowing a couple of thousands at https://www.kertaluotto.com/kertalaina-200-e/ to go out and have a good time. But that's not how you buy a house, you need a different approach.


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