Should we get the line of credit?

[ame555]

Looking for some input...we have approx $25,000 in line of credit/credit card debt (unforseen expenses, not saving enough and careless spending). The line of credit is 8.5% interest (it's one I've had forever, before we owned a house, so its unsecured) and credit card interest is 12.9%.

Our other debt is our mortgage, variable rate at 2.35%. Our approx home value is $319,000 and we have $148,000 remaining on the mortgage.

I realized we can get a line of credit against our house for 3.5%, but the costs are assessement (approx. $250) and lawyer (approx. $650 to $1000).

Ofcourse if we did we would close the line of credit at the other bank and not use the credit card.

We would keep the same mortgage rate, and the line of credit would be separate.

I'm just not sure if the costs (assessement, lawyer) are worth the interest you would save.

Has anyone done something similar?

Thanks!

[ellis123]

There are some critical pieces of information missing like how much do you pay each month to service the debts (credit card and line of credit together) with this information you could then determine if it would make sense to take another line of credit for 3.5% and the fees.
Just a side note. -any interest you save plus getting out of debt sooner is always worth it.
If you pm me the details I can work out how much years it will take for you to payoff the debt and how much interest you will save.

[marmaduke]

We went to CIBC and discussed getting a L of C. They offered to do the whole transaction at NO cost to us. We just did it this year.
It might be worth a phone call.

[ashedfc]

Looking for some input...we have approx $25,000 in line of credit/credit card debt (unforseen expenses, not saving enough and careless spending). The line of credit is 8.5% interest (it's one I've had forever, before we owned a house, so its unsecured) and credit card interest is 12.9%.

Our other debt is our mortgage, variable rate at 2.35%. Our approx home value is $319,000 and we have $148,000 remaining on the mortgage.

I realized we can get a line of credit against our house for 3.5%, but the costs are assessement (approx. $250) and lawyer (approx. $650 to $1000).

Ofcourse if we did we would close the line of credit at the other bank and not use the credit card.

We would keep the same mortgage rate, and the line of credit would be separate.

I'm just not sure if the costs (assessement, lawyer) are worth the interest you would save.

Has anyone done something similar?

Thanks!

It makes sense to reduce your interest cost on the outstanding borrowing (line of credit @ 8.5% & credit card @ 12.9%) to 3.5%. This will reduce your monthly payment, & even if you continue to make the same payment you are doing as of now; more of it will go towards the outstanding debt repayment).

Line of Credit is a double edged sword - it helps in reducing your borrowing cost, but the flip side is, it also makes money available to spend. This is the main reason why people with an accessible line of credit need to have financial discipline in their spending habits. If you don't control unnecessary spending its very easy to rack up the debt once again..

As far as the costs involved; you can talk to your existing mortgage company; they may be able to add a line of credit on top of the mortgage & wipe out all the 8.5% & 12.9% debt.. If not you can also contact Manulife Bank & get Manulife One from them, they also have zero costs (just a suggestion)..

[themortgageguy]

I'd get rid of that LOC and credit card asap. You have a few options:

1) LOC: yes the costs are there but there are options to you for that. There are lenders that cover off the costs and yes Prime +1/2% is available. Thing to remember is that rate is usually for a line of credit secured in first position and right now your mortgage is in first position so you may not be able to get that rate. Try to get it with the lender you have your mortgage with since the lender will have first and second they should just treat as a first position. There are a few lenders out there that are happy to provide a LOC in second position at good rates. Be sure to ask whoever you go with what dollar value they will register the line of credit at and at what interest rate.

2) You could consider a second mortgage as well. Its a viable option given your equity. Once its paid off you won't be tempted to hit the LOC. Doesn't fluctuate either unless its variable.

Above all else do a budget and set a date to have the loan paid off and stick to it.

Just a comment on Manulife. Their LOC doesn't follow the prime rate but a "prescribed rate" which they determine. leaves them wiggle room from prime. Read the fine print. Other options are available that literally identical to the manulife one product and do follow the prime rate.

[jayne_a]

i got a line of credit and transferred all my bills to it. I make large payments to pay it off fast. After doing the math, we figured that b/c of the lower interest, and the amount of debt we did have, we could pay the LOC off faster than just by making our monthly payments on our loans. It's always a good idea to first talk to your financial advisor. they might find something your missing and tell you to just keep doing what your doing. Hope this helps. and good luck.

[MortgageQueen]

hi ame555.
I'm pretty sure I can get you a "2nd" at 3.5. . .no fees/legal. Just let me know.

In regard to above comments, I agree high interest debt should be eliminated 1st. I would think if you transfered that LOC/cred. card to a 3.5 percent and worked hard paying it down, you could get it down pretty quickly.
One trick I tell my clients with Line of credit is, DO NOT set it up for transfers to your chequing account and DO NOT have a bank card for it. If you have to go to a branch during bank hours and go to a teller. . . it gives you more time to think about what it is you're doing. . .(i.e. going into debt)
Also a good thing would be to look at your "triggers" for spending. If you can identify what it is you're overspending on, you're one step closer to solving the impulse.