Reducing non deductible debt - strategy?

[Torontoskov]

Hi, this is a continuation of my previous thread but now that I have some answers I need some advice.

Rental Mort 460K due Jan 09 (deductible intrest debt)
CIBC Personal LOC 120K prime + 1% (non deductible intrest debt)
TD HELOC 270K prime (deductible intrest debt)

I would like to devote as much cash flow (rental income) as possible towards debt reduction on Personal LOC and could pay it off in 2 yrs. In order to do this, the way I see it, I would need access to a new LOC that I could use to pay all business related cost on the rental rather than pay it out of rental income as I do now.

In 2 yrs I would have a balance on the new business LOC of 120K and a 0 balance on the personal LOC....finally no non deductible debt!

The problem is, even with great equity and good employment incomes, the numbers still don`t look favourable for me to get access to additional LOC room.

Are there any other options out there, perhaps structuring the rental as a business rather than personal income...an escalating and declining LOC limit so no actual increase debt levels...? ANyone else been through this?

 

[jcab256]

If your HELOC/LOC for the rental allows for interest only payment, why don`t you just pay the interest, pay business expenses out of the rental HELOC/LOC (everything except salary if you take one), and put all rental income towards your non-deductable debt.

Do a google search for "cash flow dam", or look here: Hi, this is a continuation of my previous thread but now that I have some answers I need some advice.

Rental Mort 460K due Jan 09 (deductible intrest debt)
CIBC Personal LOC 120K prime + 1% (non deductible intrest debt)
TD HELOC 270K prime (deductible intrest debt)

I would like to devote as much cash flow (rental income) as possible towards debt reduction on Personal LOC and could pay it off in 2 yrs. In order to do this, the way I see it, I would need access to a new LOC that I could use to pay all business related cost on the rental rather than pay it out of rental income as I do now.

In 2 yrs I would have a balance on the new business LOC of 120K and a 0 balance on the personal LOC....finally no non deductible debt!

The problem is, even with great equity and good employment incomes, the numbers still don`t look favourable for me to get access to additional LOC room.

Are there any other options out there, perhaps structuring the rental as a business rather than personal income...an escalating and declining LOC limit so no actual increase debt levels...? ANyone else been through this?

 

[RobMacdonald]

It`s difficult to make a recommendation without seeing the whole picture. What you really need is a readvanceable mortgage. Scotiabank offers the STEP mortgage that allows you to have up to 3 mortgages and 3 LOC`s. As you pay down one, the available credit can be moved to the other account.

By the sounds of it, you have fixed limit products, and that`s going to be tough to do what you`re trying.

Read the Cashflow dam info it might help.

 

[Torontoskov]

QUOTE (RobMacdonaldCMT @ Mar 12 2009, 12:51 AM) It`s difficult to make a recommendation without seeing the whole picture. What you really need is a readvanceable mortgage. Scotiabank offers the STEP mortgage that allows you to have up to 3 mortgages and 3 LOC`s. As you pay down one, the available credit can be moved to the other account.

By the sounds of it, you have fixed limit products, and that`s going to be tough to do what you`re trying.

Read the Cashflow dam info it might help.


Thanks for all your advice. The readvancable mortgage is the ticket as long as I can keep pymts as low as possible (35 yr term). Yes the HELOC, LOC are all interest only so that helps.

The rental property did very well on the appraisal so hopefully that will give me a larger limit on the refinance allowing me to start expensing all property costs through it. The HELOC is tied to stocks etc.....so I won`t be cashing that in for awhile ;-(