Advertisem*nt
Columns
By Romana King on February 22, 2016
Estimated reading time: 3 minutes
By Romana King on February 22, 2016
Estimated reading time: 3 minutes
Pay off the debt with the highest interest first
Advertisem*nt
Q:We are currently in position to either pay down our lines of credit or pay down our mortgage. We recently sold one property and renovated and moved into another. The lines of credit were used to help renovate the property we just moved into. We now find ourselves in a debt vs debt standoff. Do we use the money to pay off the mortgage, leaving us with about $70,000 owing and about $150,000 on a line of credit, or do we tackle the line of credit, which would leave us with $15,000 in the bank and a $290,000 remaining mortgage?— Debt vs. Debt, Aurora, Ont.
You’re 2 minutes away from getting the best mortgage rates in CanadaAnswer a few quick questions to get a personalized rate quote*
You will be leaving MoneySense. Just close the tab to return.
Answer 1: As with any debt, pay off the one with the highest interest first. Mortgages tend to have unfavourable interest and compounding structure, making them the better bet to pay down first. Lines of credit have more simple interest calculations, making them easier to pay down over time. I have clients who have taken out lines of credit to pay off their mortgages, once they got low enough. If you create a spreadsheet and calculate the total interest paid on the mortgage and the lines of credit, the answer will be obvious.
Laurin Jeffrey is a realtor with Century 21 Regal Realty Brokerage. He’s a history geek and photographer and specializes in lofts and unique properties. He can be found online at www.jeffreyteam.com.
Answer 2:I’m not a financial planner, I’m a real estate agent, but in my opinion you should alwayspay off the debt that has the highestinterest rate—typically theline of credit. Remember a lot of people will refinance their home to pay off high interest debt, because mortgage rates are so low. Also by paying off the line of credit, it gives you access to thatmoney again, should you need it for an emergency.
Aleksandra Oleksak is a sales representative for Sage Real Estate, buying, selling and renovating her way through one of the top cities to live in. She is a Torontonian who loves the city and is passionate about its real estate. When she’s not out in the real estate trenches making the real estate process for buyers and sellers fun and stress free, you can catch her on her snowboard exploring the world.
What does the * mean?
Affiliate (monetized) links can sometimes result in a payment to MoneySense (owned by Ratehub Inc.), which helps our website stay free to our users. If a link has an asterisk (*) or is labelled as “Featured,” it is an affiliate link. If a link is labelled as “Sponsored,” it is a paid placement, which may or may not have an affiliate link. Our editorial content will never be influenced by these links. We are committed to looking at all available products in the market. Where a product ranks in our article, and whether or not it’s included in the first place, is never driven by compensation. For more details, read our MoneySense Monetization policy.
Comments
MY WIFE AND I PAID OUR LAST PAYMENT OF OUR MORTGAGE WITH OUR EQUITY, DID WE DO THE RIGHT THING?
Reply
These are two very different answers. Aleksandra’s answer makes more sense to me. Mr. Laurin, please try to change my mind.
Reply
Advertisem*nt
Related Articles
Real Estate
Home buyers’ alert: Terms you may not know, but should
Understanding industry jargon can make you a better real estate investor.
Home buyers’ alert: Terms you may not know, but should
News
Federal Budget 2024: How it will affect Canadians’ finances and taxes
Learn how the federal government’s 2024 budget can affect you and your money.
Federal Budget 2024: How it will affect Canadians’ finances and taxes
How much income do I need to qualify for a mortgage in Canada?
Real Estate
Ottawa to allow 30-year amortization for first-time buyers’ mortgages on new homes
The federal government is also raising the amount Canadians can pull from their RRSP to purchase a home through...
Ottawa to allow 30-year amortization for first-time buyers’ mortgages on new homes
Mortgages
Making sense of the Bank of Canada interest rate decision on April 10, 2024
Created By
Ratehub
Making sense of the Bank of Canada interest rate decision on April 10, 2024
News
Will Canada go into a recession in 2024?
Canada may be likely to avoid a recession, but we won’t start recovering until the second half of 2024,...
Will Canada go into a recession in 2024?
Ask a Planner
What new bare trust tax filing rules mean for Canadians
Do Canadians have to file a trust tax return this year? What is a bare trust? What are the...
What new bare trust tax filing rules mean for Canadians
News
Housing starts stable in 2023, but demand still outpaces growing supply of apartments
A new CMHC report says construction of new homes in Canada’s six largest cities remained near all-time high levels...
Housing starts stable in 2023, but demand still outpaces growing supply of apartments
News
Don’t get stuck on financial advice that doesn’t ring true
Financial experts debunk old money myths and offer advice that many Canadians might find more helpful today.
Don’t get stuck on financial advice that doesn’t ring true
Real Estate
How much you need to earn to afford a home in Toronto and the GTA
Presented By
National Bank of Canada
How much you need to earn to afford a home in Toronto and the GTA