Possible to get a HELOC to use towards downpayment?

[ontarioweddingdirectory]

First time home-buyer:

Will have approx. 10% downpayment for home of $280k.

1) Is it possible to get a HELOC for the remaining 10% to avoid CMHC insurance, or is this not allowed?

I have no other debts, and do have an additional $12k in cash slated for long term investment - index funds as well as $10k that I was planning to use for furniture, appliances, etc.

2) If it is not possible to get HELOC, am I better off using the money I have for appliances and long term investment to get to 20% down and then getting a LOC for furniture/appliance purchases?

[VivienM]

First time home-buyer:

Will have approx. 10% downpayment for home of $280k.

1) Is it possible to get a HELOC for the remaining 10% to avoid CMHC insurance, or is this not allowed?

I have no other debts, and do have an additional $12k in cash slated for long term investment - index funds as well as $10k that I was planning to use for furniture, appliances, etc.

2) If it is not possible to get HELOC, am I better off using the money I have for appliances and long term investment to get to 20% down and then getting a LOC for furniture/appliance purchases?

Hmmmmmmmm... neither will work?

You can't have more than 80% (I thought it was 75%? but I may just be old and not up to date on the new rules) owing on a house without mortgage insurance, no matter how you cut it up.

e.g. If you buy a house for $100K (yeah right), and you owe $75K, then your HELOC will let you spend $5K. Not $25K.

[pitz]

First time home-buyer:

Will have approx. 10% downpayment for home of $280k.

1) Is it possible to get a HELOC for the remaining 10% to avoid CMHC insurance, or is this not allowed?


Generally speaking, you can't do this.



I have no other debts, and do have an additional $12k in cash slated for long term investment - index funds as well as $10k that I was planning to use for furniture, appliances, etc.


Well, if you calculate the implied cost of CMHC insurance, the cost is typically greater than 12% or so.

Its very unlikely you could earn 12% after-tax in index funds over the long term.

So you should use the entirety of your savings towards the downpayment.

Same deal with the appliances/furniture. You can probably finance those items less expensively than you would be paying for CMHC insurance.



2) If it is not possible to get HELOC, am I better off using the money I have for appliances and long term investment to get to 20% down and then getting a LOC for furniture/appliance purchases?

Definitely. I'd also suggest that you use HBP funds as well from your RRSP, if you have one. If you don't have a RRSP, you should contribute your downpayment funds, $20k per spouse, leave them in for 90 days, and then withdraw through the HBP. This will give you an up-front tax deduction (which should give you thousands of dollars back on your taxes), while you have many years left to repay.

<insert all the standard arguments about houses being overpriced here>

[monkey_bongo]

Great advice pitz. I would recommend to do the same with the RRSPs which is a great way to get some that tax refund in advance.

On the appliances, there's a few business such as the Brick and Corbeil that have offers like "Don't pay for x months" that will save you some interest over borrowing over a the LOC. Also after that period, you could do a balance transfer to a low interest CC offer.

If you are dipping into your emergency savings, just remember moving in and new home expenses can easily add up and would leave you very vulnerable should any emergency would happen.

[ontarioweddingdirectory]

I'd also suggest that you use HBP funds as well from your RRSP, if you have one. If you don't have a RRSP, you should contribute your downpayment funds, $20k per spouse, leave them in for 90 days, and then withdraw through the HBP. This will give you an up-front tax deduction (which should give you thousands of dollars back on your taxes), while you have many years left to repay.

I have just started working full time this year (out of school), and so has my wife. Our income for 2008 will therefore be low compared to what it will be for 2009. Still a good idea to use HBP considering that we won't have the benefit of the tax savings when we are making more and paying back into the plan?
Or, is it a better idea to still use HBP and don't claim the RRSP until 2009 tax returns if that's possible?

[Merlocke]

I have just started working full time this year (out of school), and so has my wife. Our income for 2008 will therefore be low compared to what it will be for 2009. Still a good idea to use HBP considering that we won't have the benefit of the tax savings when we are making more and paying back into the plan?
Or, is it a better idea to still use HBP and don't claim the RRSP until 2009 tax returns if that's possible?

Without crunching the numbers directly - HBP plan as suggested by pitz gives you a method to make your money work in two places at once. Yes you will have to pay back into your RSP in year 2 but the few thousand in tax savings from the 20k suggestion just adds to your DP amount faster.

It is possible to earn more than 12% in a real estate backed fund, but then you take a higher amount of risk comparatively speaking. And most of these funds keep you locked in for 5 years or longer.