The home line equity line of credit. Or how the bank gets to own your home.

Our local freebie newspaper had the following Advertisement on the front page last week. It was from one of our big 5 banks in Canada and it took up the entire page.  It said simply in 200 point Times New Roman:

Is your home equity credit line weighing you down?

Turn the page and it offered 1/2 % better rate than the competition. Is that a good deal?  Before you jump on the offer, we'd better examine what a Home Line Equity Line of Credit (LOC) actually is.

You have finally bought that house you've always dreamt of. You have negotiated a stunning rate at your local bank, with a 30 year amortization. You've managed a small downpayment, say $100,000.00 on a $400,000.00 home, but what the heck. The house is yours (well, you own the title of the house, but the bank actually owns 3/4 of it). Now you can settle back and enjoy your new home.  Hold it just a moment, reality check time.  Once the automatic deductions for the mortage payments start, coupled with the car lease payments, day to day expenditures maybe just about covered, but it doesn't leave much room for little luxuries, not to mention socking away that couple of months salary that you should have just in case you get laid off. 

Ta dah, the bank has an answer! How about a line of credit.  You shake your head. Not possible, the bank won't give you a line of credit.  But hold on a minute ... don't you own your home (well, mortgaged of course)?  The bank is more than willing to give you a line of credit using your home as security. (Well, it's a no brainer, the bank has your house as security, so if you default, the bank has your house!) 

And what is even more attractive is the more you pay down your home, the more money the bank will loan you.

Here's a link to a lovely lady telling all about it. Copy and paste it into your address line.

https://www.rbcadvicecentre.com/how-using-the-equity-in-your-home-could-benefit-you

Doesn't it sound just wonderful?  Hold on a minute. Think about this carefully.

You own $100,000.00 of your $400,000.00 home. The bank owns 3/4 of your home (the amount of the mortgage). Now the bank offers to loan you $100,000.00 (which is the part of the home that you own) at a very good rate.

Yippee!!! Now you can go and buy all those luxeries that you couldn't afford before.  But do a little math. If you max out your Home equity line of credit (and believe me it's easy to do), how much will you owe the bank?  $300,000 for the mortage and $100,000 for the Line of credit. So how much of your home do you really own?

A big fat ZERO.

Do you want to be a hamster in a wheel?  Well, just get yourself a home equity line of credit.

"In this world nothing can be said to be certain, except death and taxes." Benjamin Franklin

At the beginning of every year, the Canada Revenue Agency mails out tax packages to everyone who filed a return the year before.


This year I got mine in December.  Ouch. Is this a hint? Is our Government in desperate need for my tax dollars? Is this a preemptive move to save money by mailing all the packages out before the post office increases the mailing rates?  Who knows?  Maybe somebody was working overtime over Christmas and decided to just get them out.


Yesterday I went to Best Buy and got my tax software package. Now don't get me wrong. I know how to do my return on paper, in fact I've done my own tax returns - on paper - for over 20 years now. And believe me, February is a busy month, waiting for the slips to arrive and filing out the return, calculating, and should a slip come in late or a mistake in addition require, re-calculating my return.  That's why I've decided to bite the bullet and use the software. 

I now have 4 returns to do. One for every member of the family.  You may ask, as a bookkeeper, isn't part of your job doing taxes?  Well, a very good accountant friend of mine told me that 95% of his headaches and 5% of his business came from doing personal taxes. I did the math. I don't need the headaches. My business emphatically does not include doing tax returns.


However, doing the tax return, even if it physically takes very little actual time, is an art.  A lot will depend on how you handle your money. And even more will depend on your knowledge of what tax efficiencies you can use to keep your money in your pocket and out of the coffers of the Receiver General.


I hope to be able to show you how a greater knowledge of personal finance can help you fill out your tax return to your advantage.  And to make the deal even sweeter ... it's all legal!

Under Construction

I'm very excited to start this new blog.

I have really enjoyed working on my first blog, Kellygardens.blogspot.com. It renewed my love for writing and it gave me the opportunity to share my experiences with my friends. I'm not sure it will ever win me a Giller, but it is, none-the-less, inspirational to me. The inspiration for this blog was a question posed by my son regarding mortgages, and I thought that I should perhaps create a new blog to jot down the myriad of tidbits regarding personal finance that I've gleaned from first hand experience over the years. Perhaps, if they remember, they can visit here in the future when they want some advice.

For those of my faithful followers at kellygardens.blogspot.com, who have requested more pictures, I'll say up front, that I'm at a loss as to what pictures I might add to this blog. But, on a positive note, I hope to have guest writers! David has lead me to believe that he might like to do a blog post one day. I do hope so, as he has much of worth to say.