Financial Advisor 2 (1:48)

It just takes that stress out of.

Caller (Carol) (1:49)

The day to day life.

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Financial Advisor 2 (1:54)

You couldn't cash flow the renovations. Making half a million dollars.

Caller (Carol) (2:00)

Yeah, I. But after tax, it's only about 200. 300 a year is what we take home.

Financial Advisor 2 (2:06)

Okay.

Financial Advisor 1 (2:07)

Okay, well, what's your like?

Caller (Carol) (2:08)

It's significant tax.

Financial Advisor 1 (2:09)

What do you owe on the house? Aside from this?

Caller (Carol) (2:12)

Yep. So we have a mortgage for 750,000 and that's at 3.6%, but the house is valued at 2.5 million.

Financial Advisor 1 (2:20)

Okay, what's the, what's the percentage on the HELOC? What's the interest?

Caller (Carol) (2:24)

It's 4.5.

Financial Advisor 2 (2:26)

And then what other debt do you have outside of the mortgage and heloc?

Caller (Carol) (2:29)

That's it.

Financial Advisor 2 (2:29)

Okay. I thought you were going to hit me with a bunch of consumer debt. All right.

Caller (Carol) (2:33)

No, because it's all rolled into one. And I think I've never heard. I've been binging this and I've never heard how you attack just like one big.

Financial Advisor 2 (2:40)

Yeah, generally. Here's our parameter. With HELOCs. 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 would pay it. Versus in baby step two with other consumer debt. Since you guys have no consumer debt. Do you have an emergency fund? Do you have savings?

Caller (Carol) (2:58)

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.

Financial Advisor 2 (3:11)

Do you have anything in cash? Like if you had an emergency today, how would you pay for it?

Caller (Carol) (3:16)

I already did baby step one, so I have. We probably have about 5,000 in cash.

Financial Advisor 2 (3:20)

Okay. But your next paycheck is going to be sizable. You're going to make like what, 25 grand on the next check?

Caller (Carol) (3:27)

Yeah, like per month. My husband and I are. Yeah, we bring home around 25 grand a month.

Financial Advisor 2 (3:31)

Okay. How much of that could you throw into a savings account next month, for example?

Caller (Carol) (3:36)

If I wasn't putting it towards the HELOC, then probably seven grand.

Financial Advisor 2 (3:42)

So you guys are spending close to 20 grand a month.

Caller (Carol) (3:47)

I'd say our spending kids are in private school. The interest on the heloc is about 1800. So yeah, like I'd say we spend around 12 grand a month on.

Financial Advisor 2 (4:02)

The private school for all three kids.

Caller (Carol) (4:05)

Yes.

Financial Advisor 2 (4:06)

Man, that's. That's a real. That's. Your burn rate is high here. You've got a lot of expenses going on. I'm guessing we're not going to put them in public school to clean up this mess.

Caller (Carol) (4:16)

Well, they're almost out so into like to middle school. So that's going to change and get better over the next couple years. I just, I didn't want to feel like I was rolling the HELOC into the mortgage and kicking the can down the road and whether I should, you know, roll some of it in and then keep some of it and attack that really fast. I'm not sure.

Financial Advisor 2 (4:37)

I kind of like them broken up just for. I mean, is the HELOC going to have a variable rate here?

Financial Advisor 1 (4:41)

Ask the same thing.

Caller (Carol) (4:43)

It's currently variable, but again, in June we signed the next five year mortgage so it would lock in at whatever the interest rate is, which is.

Financial Advisor 2 (4:49)

God bless the strangeness of Canada. Every five years we reset the mortgage rates.

Financial Advisor 1 (4:53)

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 it going to go to?

Caller (Carol) (5:00)

It'd probably go down. So between 2.9 and 3.2.

Financial Advisor 1 (5:04)

Interesting. So if you, have you done the math, if you, if you did that, what percentage of your income would this mortgage be?

Caller (Carol) (5:11)

So that would move us from the 25% to about 29 to 30% of house expenses on a 30 year, or.

Financial Advisor 1 (5:20)

Are you doing a 15 year?

Caller (Carol) (5:23)

We haven't discovered that yet. My calls tomorrow with the bank.

Financial Advisor 2 (5:26)

Okay. My guess is, well, they don't do the 30 and 15. You have like a five year old.

Caller (Carol) (5:30)

Oh, and it rolls every, you still do like a 15 or 20 year, but every five years you revisit it and you get to redo it.

Financial Advisor 2 (5:37)

Okay.

Financial Advisor 1 (5:37)

How often does the rate on the HELOC variate, It's variable.

Caller (Carol) (5:42)

So was high over every month, couple years, but dropping now it's every month that the interest comes out. But then just depending on what the, you know, bank of Canada does, the interest rate goes up and down.

Financial Advisor 2 (5:53)

Okay.

Financial Advisor 1 (5:53)

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 parameter, 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 the can down the road.

Caller (Carol) (6:17)

Okay. Okay. So there is maybe a point in which some of it we roll in as long as we keep that 25% into the home from our income.

Financial Advisor 1 (6:26)

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 and all that jazz. I'm just talking about after taxes you don't want it to be more than 25% with all in with HOA fees, insurance, all of 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 a variable rate. Let me just say I just feel.

Financial Advisor 2 (7:00)

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 goal to pay this off. And let's say three years, it's 133 grand a year. That's 11 grand a month. Come hell or high water, we're going to throw 11 grand a month at the HELOC. Is that something you guys could do?

Caller (Carol) (7:21)

Yeah, I think we could. I just needed to know. It just. I've heard that last week it was like, if it's half more than half this, you roll it in. And I just wasn't sure if there was a difference.

Financial Advisor 1 (7:29)

It's not about rolling it in, it's about you're attacking it.

Financial Advisor 2 (7:33)

So, yeah, the timing of it. And so for you guys, since you don't have consumer debt, you're just looking at these two debts going, what do I do with these? I would just plow through. If you can do more than 11 grand a month, be my guest. I'm just throwing a random goal out there. You and your husband should sit down tonight and go, we got to clean this up. And to that end, I might delay some of the kids stuff. Like, we got time to catch up on that. Right now we've got this thing eating our lunch with these giant mortgages and heloc. So I would 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?

Caller (Carol) (8:15)

Yep.

Financial Advisor 2 (8:15)

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 it to go. Okay, what do we got to do today, this month to get there?

Caller (Carol) (8:26)

Awesome. Thank you so much.

Financial Advisor 2 (8:28)

Yeah, absolutely. Thank you so much for the call.

Financial Advisor 1 (8:30)

That's a good question.

Financial Advisor 2 (8:31)

Love hearing from our Canadian listeners just to know that there, Canada has its own problems. You know, people are making crazy decisions all over the world.

Financial Advisor 1 (8:40)

All over the world.

Financial Advisor 2 (8:40)

But America goes first. We're like, you know what? We're going to 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.

Financial Advisor 1 (8:50)

They do. And that.

Financial Advisor 2 (8:51)

Yeah, it's hard to, like, feel bad when you're making half a million even after taxes. $300,000. Quite the shovel.

Financial Advisor 1 (8:58)

Yeah.

Financial Advisor 2 (8:58)

But you can see you just, you know, make decisions with bigger zeros on the end when it comes to.

Financial Advisor 1 (9:03)

It's very relative in that way. But yeah, this is. Yeah, I'm writing for more money, more problems.

Financial Advisor 2 (9:09)

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 how quickly can disappear.

Financial Advisor 1 (9:22)

Yeah.

Financial Advisor 2 (9:22)

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. And if you get a raise, ignore it and just invest the difference. Give more, save more. That's the key to becoming truly wealthy. And I think Carol and her husband will get there in no time.

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