What is best option ( Related to Mortgage & Line of Credit)
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Here is a situation for my friend & need to know what is best option?
He bought a new house around 8 months back , around 330-340K which is a single family home but less area ( around 1300 sq. ft)
Because of economic condition, most of house prices are reduced.
So looking for bigger NEW house around 1900-2000 sq ft & prices around 410-420K
On existing house Mortgage around 300K, but if he goes for new house, Mortgage requires around 380K ( as paying 10% down payment)
On existing house, Mortgage is at Prime minus 0.8
But if apply for new Mortgage, mostly its Prime plus 0.7 or 0.8
He already checked with Mortgage company & they told Mortgage can be transfer to new home if amount remains same. So naturally Mortgage rate will remain as Prime minus 0.8
But if person takes more amount as Mortgage, then it will go as new Mortgage application & so he will get Prime plus 0.7 or 0.8
My friend is ready to pay more than 10% as down payment but not certainly 80K
So what are best options to him?
Some one suggested him to go for Line of Credit, but not sure how it works?
What are the factors considered for Line of Credit? What are rates?
He has to take Line of Credit only from same bank where account is at present?
Can some one write more on this?
Thanks
Line of Credit more or less works same as a personal loan, except that the loan amount is there for you everytime/anytime you want. Its like your credit card wherein you can take out cash at some interest payable to them.
The factors affecting are the present liabilities what your friend has, his credit score/rating & his income. It's been evaluated similar to a mortgage. In a general rule anyone with a good credit history can have a 35% of his present annual salary as his LOC. One can have a joint LOC with their spouse. The rates could be anywhere between prime+1% to prime+3% right now.
You can take LOC from any bank you like but its preferable to have it from your primary bank (the bank where you deal regularly for your paycheck, mortgage, bill payments or any loans in the past). I am not sure, but I think if you take a line of credit from a new bank they have to open a new chequing account under your name to link that with your LOC & then you have to maintain a minimum balance ($1000) in that account to waive the maintenance charges, which according to me is not a good idea.
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i..........rock........!!!!!
Quote:
Originally posted by mumdxbcan
He bought a new house around 8 months back , around 330-340K which is a single family home but less area ( around 1300 sq. ft)
Because of economic condition, most of house prices are reduced.
So looking for bigger NEW house around 1900-2000 sq ft & prices around 410-420K
I am surprised by what your friend is attempting to do.
He is using his primary residential home as a means of speculation in the highly volatile real-estate market.
So 8 months ago a house of 1300 sq. ft. was enough for his needs.
Now suddenly he needs a 2000 sq. ft. house - why?
What has changed?
After 6 months, let's say real estate prices diminish further.
What's he gonna do - sell the 2000 sq. ft. house and buy a 3000 sq. ft. house?
Take out another line of credit to pay for additional mortgage?
Where does it end?
Quote:No, the down payment should be higher because he's going to have an extra 40K from the sale of his existing home.
On existing house Mortgage around 300K, but if he goes for new house, Mortgage requires around 380K ( as paying 10% down payment)
10% of 420K is 42K, plus the 40K profit from the old home (minus expenses).
Still, it's not a good situation.
He is going to increase his debt and reduce his equity.
If home prices fall further during next year, he could easily end up with negative equity ("upside down" mortgage).
Quote:LOC can be either secured or unsecured.
So what are best options to him?
Some one suggested him to go for Line of Credit, but not sure how it works?
Secured is usually against the home (HELOC).
Quote:You'll need to shop around for this, or work with a mortgage broker who can organise all of this.
What are the factors considered for Line of Credit? What are rates?
He has to take Line of Credit only from same bank where account is at present?
I feel that your friend is taking on a lot of debt obligations by doing this.
He's going to increase his debt, pay higher interest rate on the LOC than the prime minus 0.80 that he currently has, and he's probably not going to build any equity in the new house for at least a some years.
Maybe he should get rate quotes and then work out the math before taking the plunge.
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"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."
-- Rhett Butler in "Gone with the Wind"
Location: carl sagan's universe
Posted on: 13-11-08 00:03:45
Quote:
Originally posted by mumdxbcan
Here is a situation for my friend & need to know what is best option?
He bought a new house around 8 months back , around 330-340K which is a single family home but less area ( around 1300 sq. ft)
Because of economic condition, most of house prices are reduced.
So looking for bigger NEW house around 1900-2000 sq ft & prices around 410-420K
On existing house Mortgage around 300K, but if he goes for new house, Mortgage requires around 380K ( as paying 10% down payment)
On existing house, Mortgage is at Prime minus 0.8
But if apply for new Mortgage, mostly its Prime plus 0.7 or 0.8
He already checked with Mortgage company & they told Mortgage can be transfer to new home if amount remains same. So naturally Mortgage rate will remain as Prime minus 0.8
But if person takes more amount as Mortgage, then it will go as new Mortgage application & so he will get Prime plus 0.7 or 0.8
My friend is ready to pay more than 10% as down payment but not certainly 80K
So what are best options to him?
Some one suggested him to go for Line of Credit, but not sure how it works?
What are the factors considered for Line of Credit? What are rates?
He has to take Line of Credit only from same bank where account is at present?
Can some one write more on this?
Thanks
please see pm
Location: Mississauga - Square One
Posted on: 13-11-08 09:40:04
I am really surprised at the way your friend is thinking..... this is the time wherein everybody should be possibly spending less or if possible stay out of debt.....
As you can see the bottom is not seen in the stock/housing market....
I wonder how some Canadians can think that there is wall between Canada and our southern neighbors.......they are thinking what happened in US will not happen in Canada..... I would advise the person to tighten up his belt and spend less and stay out of debt during these difficult times; where the analysts are believing worse to come in 2009....
Quote:Care to share your recommendations?
Originally posted by investpro
please see pm
I'm curious and I'm sure others will be too.
Thanks
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"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."
-- Rhett Butler in "Gone with the Wind"
I fully agree with Taleti.
we are passing through one of the most turbulent times ever. There is no asset, job or stock which can be deemed safe.
For instance, Nortel was 'The' stock to own couple of years ago. It was at 124$ per share. Yesterday, it was at 80cents/ stock.
A penny stock to be precise.
Taking additional debt at this stage is pure nuts. 
Kindly convey the same to your friend.
seenappa
