# Maxed out my 2011 Lump Sum Mort. Pymt



## DavidJD (Sep 27, 2009)

Feels good to hammer down the principal. 

Anyone else doing similar with their tax refund?


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## Plugging Along (Jan 3, 2011)

Congrats! I feel good everytime I get to put a large chunk on our mortgage. We don't have a max, but that's what we'll be doing with our refund too.


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## CuriousReader (Apr 3, 2009)

How big was your tax refund or how small is your max annual lump sump?

Just wondering, because the amount of tax refund sound generally a lot smaller than max annual lump sump.


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## jamesbe (May 8, 2010)

Yeah. Y annual max lump is $70k, I wish my refund was as much haha


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## DavidJD (Sep 27, 2009)

Good question.

$12K I can put down per year on the mortgage. My wife and I managed to reduce our returns for the last year to $5K combined. Simply by avoiding/defering taxes rather than earning less.

Home value $300,000 had a 3-year closed, principal was $80,000 - will have a $17K left on maturity next August.

This mortgage is just annoying in that it is hanging around and I cannot pay it down any faster than what i am doing.


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## marina628 (Dec 14, 2010)

I maxed my 2011 prepayment in January will be a boring year for me lol


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## Jungle (Feb 17, 2010)

Marina if you are that bored, I will let you max out our mortgages.


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## marina628 (Dec 14, 2010)

Hahaha Jungle since we are landlord neighbors maybe I will buy you a lawnmower so you don't devalue my house .


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## Jungle (Feb 17, 2010)

lol. I got the lawnmower working, (and got a sore back doing it) so no devaluing going on here! 

On Topic: We just re-invested our tax refunds back in our rsp.


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## Four Pillars (Apr 5, 2009)

We've been maxing out annual lump sum amount ($40,800).

Of course, we've been using our (lower rate) HELOC to accomplish this.


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## DavidJD (Sep 27, 2009)

Four Pillars said:


> We've been maxing out annual lump sum amount ($40,800).
> 
> Of course, we've been using our (lower rate) HELOC to accomplish this.


What is the difference in rates?


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## sprocket1200 (Aug 21, 2009)

tax refund? why would you ever have that? fix that asap so you don't waste money again next year...


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## Four Pillars (Apr 5, 2009)

DavidJD said:


> What is the difference in rates?


In our case the gap between the fixed mortgage rate and the HELOC is 2.19% - pretty significant.


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## balexis (Apr 4, 2009)

But the HELOC is variable rate, right? Its like a way to switch from fixed rate to variable without penalty.
Is there an option to switch the variable HELOC to a fixed rate in case rates start climbing up like crazy?


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## Four Pillars (Apr 5, 2009)

balexis said:


> But the HELOC is variable rate, right? Its like a way to switch from fixed rate to variable without penalty.


Exactly.



balexis said:


> Is there an option to switch the variable HELOC to a fixed rate in case rates start climbing up like crazy?



Yes. There are no restrictions on the HELOC at all, so as long as you can get/qualify for a fixed-rate mortgage, you can then use the mortgage money to pay off the HELOC.

I don't know if that strategy (switch to fixed if rates climb) is all that realistic. If the short term rates (HELOC) start going up really fast, the 5-year rate will likely also go up, although I would guess - probably not as fast as the short term rates.

In other words, if you go short term, you might have to live with the consequences if you bet wrong.

I'd be interested to hear what others have to say about this.


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## balexis (Apr 4, 2009)

Interesting. So would you say you should've chosen a variable-rate mortgage in the first place? What are the reasons to move to a variable rate HELOC right now?

I went for a fixed/5-year term when I bought my house 3 years ago (@5.25%) and I kind of regret the decision, seeing how low the variable rates have been since. TD offered me a P+1 HELOC and I thought about doing the same thing as you (maxing pre-payments with the HELOC), but I am not sure if I should make the move or not, especially since heloc rates are higher than a traditionnal variable-rate mortgage.

Good food for thought.


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## Four Pillars (Apr 5, 2009)

balexis said:


> Interesting. So would you say you should've chosen a variable-rate mortgage in the first place? What are the reasons to move to a variable rate HELOC right now?
> 
> I went for a fixed/5-year term when I bought my house 3 years ago (@5.25%) and I kind of regret the decision, seeing how low the variable rates have been since. TD offered me a P+1 HELOC and I thought about doing the same thing as you (maxing pre-payments with the HELOC), but I am not sure if I should make the move or not, especially since heloc rates are higher than a traditionnal variable-rate mortgage.
> 
> Good food for thought.


To be honest, I don't regret the decision to lock in. At that time, our budget was fairly tight and I didn't want to deal with increasing mortgage payments. 

The reason to move (or partially move) to a HELOC now are mainly:

1) The gap in interest rates (over 2% in my case). In my opinion, interest rates don't usually move that fast. While it's not guaranteed, I think that moving some money to the HELOC is very likely to be profitable.

2) My 5 year period is up soon anyway. I think Aug 2012 is when my 5 year period ends - so even if I kept everything in the fixed rate mortgage, I won't be protected from higher interest rates for very long.

In your case, you should shop around - prime + 1% doesn't seem to be a good deal. I thought prime + 0.5% was the norm?

I don't think you can compare the HELOC rate to a variable mortgage - you don't have the option of converting your fixed mortgage to a variable mortgage without penalty.

You can use the HELOC to convert some of your fixed mortgage to a variable rate. The HELOC doesn't have to be permanent - once you have converted enough money, you can look at converting the HELOC to a variable rate mortgage, if that makes sense at that time.

I wrote an article on this very topic recently, which I'm hoping will be published soon - I'll post a link when that happens.


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## the-royal-mail (Dec 11, 2009)

I did this last year when I bought a new/er car. Paid it off quickly, then I could replenish the spent "account"/funds. It's so much better to operate with cash in the bank, rather than always be trying to "pay off" something. I want to try and use cash as much as possible as time goes on. I don't say I'll be able to accomplish that, but I'll save lots trying. 

As far as a house, they are too expensive now to be able to pay cash, so I think 20% is an excellent down payment goal.

I will want to make sure I get an open mortgage for any new future house purchase. Then I can pay off chunks whenever I want.


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## Maybe Later (Feb 19, 2011)

the-royal-mail said:


> As far as a house, they are too expensive now to be able to pay cash, so I think 20% is an excellent down payment goal.
> 
> I will want to make sure I get an open mortgage for any new future house purchase. Then I can pay off chunks whenever I want.


That could be more expensive than a closed mortgage with good prepayment options. We can both double our payments and pay an additional 20% of the original amount per year at any time (applied to the next regular payment, so it might take a couple weeks). Doing both it can be paid off penalty free in less than the 5 year term. Now if only I had the ability to do it! Short of a windfall, not going to happen.


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## jamesbe (May 8, 2010)

I may have found a small loop hole for the 20% repayment.

I took out 75% on my home purchase despite not needing that much. When both deals are done I will get a nice large cheque from my Lawyer. I will take this and put it down on my mortgage.

By doing this I have increased my available 20% per year because it is 20% of the original amount. 

It didn't increase it a lot but it did by 10k.


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## Four Pillars (Apr 5, 2009)

Four Pillars said:


> ...
> 
> I wrote an article on this very topic recently, which I'm hoping will be published soon - I'll post a link when that happens.



I know everyone has been excitedly waiting for promised article. 

http://www.moneyville.ca/article/980303--how-to-break-a-mortgage-and-not-pay-a-penalty?bn=1


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## Jungle (Feb 17, 2010)

Congrats on paying off your mortgage soon.

What bank is giving you a HELOC for 3%? 
Also doesn't the HELOC compound more than a mortgage?


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## Four Pillars (Apr 5, 2009)

@Jungle - thanks (in advance).

I believe the HELOC does calculate interest differently - I should look into that. For my purposes, it didn't matter since the interest rate gap was so large plus I'm paying it off so quickly.

I use FirstLine (owned by CIBC). I got the HELOC about 4? years ago. At that time, prime rate lines of credit were the norm. Unfortunately, now I think the best you can do is prime + 0.5%.


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## HaroldCrump (Jun 10, 2009)

HELOC and VRMs compounds monthly while conventional mortgages compound _semi-annually, not in advance_


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