Brought to you by the EveryDollar app. Start budgeting for free today. So we had a series of kind of unfortunate events that took place over the pandemic and it caused us to take on quite a bit of bad debt. So we made improvements on the home with plans of investments coming through and those investments did not take completion and essentially went to zero.
So since then we've been really treating our HELOC like a giant credit card. Prior to me finding this, this podcast. So I'm in Canada, so our mortgage is up for renewal in June. I'm in baby step two and the amount of the HELOC is so overwhelming that I feel like I'm not sure whether I should be rolling it into our mortgage in June or whether we should be continuing for the next five or six years on paying it down.
Keeping in mind that I have, you know, three kids who are looking to go to university in the next five to eight years. So. Yeah. How much is the HELOC?
So the HELOC is at 400,000. Oh my gosh. What's your income? For income?
Well, okay, before, after taxes, that's a pretty heavy tax. Before tax. Oh, before about 500 a year you get cash flow. The renovations, making half a million dollars.
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Create your free account today. You could cash flow renovations. Making half a million dollars. Yeah, I.
But after tax, it's only about 200, 300 a year that we take home. Okay, okay, well what's your like a significant tax? What do you own a house aside from this? Yes, we have a mortgage for 750,000 and that's a 3.6, but the house is valued at 2.5 million.
Okay, what's the, what's the percentage on the HELOC? What's interest? It's 4.5. And then what other debt do you have outside of the mortgage on heloc?
That's it. Oh, I thought you'd hit me with a bunch of consumer debt. No, because it's all rolled into one. I think I've never heard.
I've been binging this and I've never Heard how you attach it like one big. Yeah, generally. Here's our parameter. With elox, if it's over half your annual income, we say, hey, roll it into your baby step six, which is when you pay off the mortgage.
So that's when you pay it versus baby step two, consumer debt. Since you guys have no consumer debt, do you have an emergency fund? You have savings? We just started that.
We have some education savings for about 50 grand for the kids right now. And then just retirement fund. We have maybe a couple hundred thousand, but other than that, not really. Do you have anything in cash?
Like if you had an emergency today, how would you pay for it? I already did baby step one, so I have. We're probably about 5,000 in cash. Okay, well, your next paycheck is going to be sizable.
You're going to make like what, 25 grand on the next check? Yeah, like per month. My husband and I are, yeah, we bring him around 25 grand a month. Okay.
How much of that could you throw into a savings account next month? For example? If I wasn't putting it towards the HELOC, then probably seven grand. So you guys are spending close to 20 grand a month.
I say our spending. Our kids are in private school or the interest on the HELOC 1800. So yeah, like I'd say we spend around 12 grand a month on. Yeah, the private school for all three kids.
Yes. Man, that's, that's a real burn rate is high here. You've got a lot of expenses going on. I'm guessing we're not gonna put them in public school to clean up this mess.
Well, they're almost out so into like to middle school. So that's gonna change over the next couple years. I just, I didn't want to feel like I was rolling a hello into the mortgage and getting the can down the road and whether I should, you know, roll some of it in and then keep some of it in and attack that really fast. I'm not sure.
We kind of like them broken up. Just. I mean, is the HELOC going to have a variable right here? It's currently variable, but again in June we sign the next five year mortgage.
So we'll lock in whatever the interest rate is. God bless the strangeness of Canada. Every five years we reset the mortgage rates. What's going to be the new mortgage rate when you renew in June?
Because it's going to, it's 3.6 now. What's going to go to. It probably go down. So between 2.9 and 3.2.
Interesting. So if you, have you done the math, if you, if you did that, what percentage of your income would this mortgage be? So that would move us from the 25% to about 29 to 30% of health expenses on a 30 year. Or are you doing a 15 year?
We have a Saturday, I make call tomorrow with the banks. My guess is, well, they don't do the 30. 15. You have like a five year.
No, you still do like a 15 or 20 year, but every five years you revisit it and you get to redo it. Okay, how often does the rate on the HELOC variate? It's variable. So it was high over here, but dropping.
Now it's every month that the interest comes out. But then just depending on what you know, they of Canada, the interest rate goes. Okay, if there was a world where you locked this in at 2.9 and it was 25% of your take home pay and it kind of fit those same parameters, it wouldn't bother me. I don't mind it being separate though for the idea of you really getting after it.
I'm afraid that if you roll it in, you won't get after it the way you need to and you'll kick can down the road. Okay. Okay, so there's maybe a point in which some of it we roll in as long as we keep that 25 into the home from our income. Well, the rule of thumb here is you don't want your mortgage to be any more than 25 of your take home pay.
So after taxes you don't have to think about, you know, insurance and investing, all that jazz. I'm just talking about after taxes you don't want to be more than 25 with all in with HOA fees, insurance, all that. Because once you get above that, it can be, it can be too much of your world. So that's, that's kind of what I was looking at at 4.5 on 400, 000.
Yeah, I wouldn't want to see that. I wouldn't want that on variable rate. Let me just say I just feel like I'm less emotionally attached to interest rates. I could give a rip at this point.
I just want to see you guys plow through these debts. And so personally I would keep the HELOC separate and make an aggressive gold. Pay this off and let's say three years, it's 133 grand a year, that's 11 grand a month. Come hell high water, we're gonna throw 11 grand a month at HELOC.
Is that something you guys could do? Yeah, I think we could. I just needed to know. I just.
Ech. That last week it was like, if it's half more than half this, you rolled in. And I just wasn't sure if there was a difference. It's not about rolling it in.
It's about where you're attacking it. So the timing of it. And so for you guys, since you don't have consumer debt, you're just looking at these two dads going, what do I do with these? I would just plow through.
If you do more than 11 grand a month, be my guess. I'm just throwing a random goal out there. You and your husband should sit down tonight and go, we gotta clean this up. And to that end, I might delay some of the kids stuff.
We got time to catch up on that. Right now we got this thing eating our lunch with these giant mortgages and heloc. So I will work to knock that out and then knock the mortgage out, because now, you know, if we can do 403 years, well, 750, we could probably knock that out in less than six years. Okay, so think about that.
In nine years, you've got the kids off to college, right? Y. And you have no mortgage, no heloc. So that's the kind of future I want you guys to start envisioning and then reverse engineer to go, okay, what do we got to do today, this month to get there?
Awesome. Thank you so much. Absolutely. Thank you so much for the call.
That's a good question. Love hearing from our Canadian listeners. Just to know that Canada has its own problems. You know, people are making crazy decisions all over the world.
All over the world. But America goes first. We're like, you know, we're gonna show you the way with the HELOC to do all the renovations and go into all the consumer debt. But the good news is they have an amazing income.
They do. And that. Yeah, it's hard to, like, feel bad when you're making half a million even after taxes. $300,000.
Quite the shuffle. Yeah, but you can see you just, you, you know, make decisions with bigger zeros on the end. Exactly. It's very relative in that way.
But, yeah, this is. Yeah. But here's the thing. You got to just, you know, baby steps, one thing at a time.
And also, what can we do to decrease our lifestyle and expenses? Because even with 25 grand, you can see it quickly can disappear. Yeah. When you got, you know, the cleaners, the private school, this, that, the other.
The heloc, the mortgage, it just eats away at even the highest incomes. And so you got to get control. Live on less than you make. If you get a raise, ignore it and just invest the difference.
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