Need Your Financial Advice

[jbayabas]

As you know my Adsense revenue is dwindling so I need your financial advice. I just can’t trust the bank. I value your unbiased opinion more.

I’m grateful to Adsense for helping me buy a house in 2006. My 9-year Adsense earnings helped me enjoy a good lifestyle and support a family of 4.

Here’s my situation: I live in Canada. I only have 95k mortgage left (2.1% interest rate). That comes to $800 monthly. My 5-year fixed rate contract will expire in June 2016. The value of my house is 400k. I have home equity line of credit of $150k.

I worry that I won’t be able to afford my monthly mortgage payment.

Question 1: Do you think it’s a good idea to pay off my mortgage with my home equity line of credit as it will greatly reduce my monthly payment?

Question 2: The current interest rate for home equity is 4%. How much would be my minimum monthly payment to pay the home equity loan of 95k?

Thanks!

[trebuchet]

First rule of credit is never borrow at a higher rate to pay off credit at a lower rate. However if your ability to make monthly repayments is at stake then it's a price you may have to pay.

If you were here in Australia I'd advise you to see your lender and refinance your 95k mortgage with a new term, thus lowering your monthly repayments. But I'm not sure how mortgage lending works in Canada and whether that would be feasible.

[ember]

What about selling the house, clearing $305,000, less selling fees, and buying a smaller home with the proceeds? Then you would have no mortgage and maybe some cash in the bank.

[Swanny007]

Always pay off your highest interest credit first. If I was in your situation, I'd remortgage (variable rate, not fixed) including the existing mortgage and line of credit so you are paying less interest overall. You have enough equity that you can do that and pay less interest than you are now.

I don't know what else payments you have such as car loan, but if you have a car loan, buy a cheaper older reliable car that will cost you less every month. Find out which cars have the best reliability (e.g. Toyota, Honda, etc). Years ago when I had a full time job and made AdSense money on the side, I sold my car to get rid of the loan and free up more money. Sold the car I bought on credit and bought a car for $3K in cash. Honestly I could still afford the car payment but I hate debt in general. Today I don't owe a penny to anyone for anything.

Can't you just get a job to help make ends meet? Even a part time one? You know, at a physical place somewhere.

[Swanny007]

p.s. What do you have in an emergency fund? It's too late now to watch Suze Orman, but I think she said to have 9 months' living expenses in the bank in case something happens. How many months' expenses do you have saved? Sounds like not enough. Better slash your expenses now before things get dire. Stop eating out, cut out cable TV, etc. In Canada you can learn more from Gail Vaz-Oxlade, she's got a show and lots of tips.

[IanCP]

If you were here in Australia I'd advise you to see your lender and refinance your 95k mortgage with a new term...

Actually, I just checked - without shopping around - the CBA online offer for $95,000 is:

4.95% No fee loan
30 year nominal term
Monthly $508 [principal and interest]

FWIW.