Me and My Money

Mortgage strategy gone sour...

Posted November 25, 2011
Originally Published April 30, 2009

Q: My mortgage is up for renewal in October. Last year I sold a rental property and invested some of the money in the stock market to be used to pay down my mortgage in the fall. You know the result of that investment. I want to renew short-term until the market recovers. My employment situation is tenuous with contract work right now. If I renew the mortgage without switching banks, do I have to show proof of earnings? Jean B

A: Let me tell you what you did wrong and then I’ll get to the righting of it. Funds that are required in the short term, i.e. less than five to seven years, should never be invested in the stock market. Even stolid blue chips can have wild swings and you don’t want to be forced to sell a good equity during a downturn.

I have my fingers crossed that you did not put the money into mutual funds with deferred sales charges because you will pay a fee, up to 6 per cent, in the first year, for selling – though you can sell up to 10 per cent annually of a given fund without triggering the sales fee.

Even if you stay with your own bank you will almost certainly face some sort of creditincome review. That is the sign of the times. But the investments you hold could be security for the bank. Together with the equity in your home, they improve your debt to income ratio.

On a positive note, the market doesn't stay down forever. To protect yourself, sell portions of your investments as the market rises, last week would have been a good time, and apply it to your mortgage. Otherwise you could be waiting years until everything is back to where it was when you invested.


Q: During the early 90's my husband was laid off during and subsequently ended up taking on two jobs to cover our expenses. Fifteen years later, we are finally starting to recover.

Last year we had an Eco Audit done to help with the cost of replacing a furnace and several old windows. All these jobs were done last December, just before the economy turned sour. My husband's job is in retail. His hours were cut considerably and have still not returned to normal. If he retires as planned next year, we will still carry a $20,000 debt on a line of credit at seven per cent.

My dilemma is that we still have two toilets that are on the last legs and need replacing. With the Eco Rebate we can get up to $120.00 for each toilet. Do we go ahead and replace them now and add to our debt to take advantage of the rebates, or wait until they break and pay full price? Susan H.


A: My rule is this: Don't fix what isn't broke but do fix what is likely to break. Additionally, don't spend money just to get rebates or sale prices. However, with a home things are always going to break and usually at the worst possible time.

If you are fairly certain your toilets are on their last legs do whatever you can to save for their replacement. Really challenge yourself for six months in order to allow you to take advantage of the rebate without taking on more debt. This may mean chopping entertainment, food, little extras, etc. but the end result will be worth it.

Regarding your husband’s retirement; since the game has changed, you may have to change your retirement game plan. Your husband could consider semi-retirement. I know two former retirees working part-time driving a shuttle service for a car dealership. Though they were professionals during their working lives, they love it because they enjoy chatting with people and doing a job with relatively little stress.

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