Drowning in Debt?

Question: My husband and I are in our mid 60s and have a line of credit of $248,000. It is secured by our home that is worth about $500,000. We also have a cottage and lot worth about $900,000. We have assets but are cash poor. Would it be possible to change our line of credit to a mortgage? Is there any advantage to our doing this? Thank you for any help you can offer. Interest charges are making us poor. – Wendy G.

Gordon Pape answers: This is exactly the reason why I strongly advise people to pay off their debts before retirement. It becomes much more difficult to carry the interest charges when you are on a fixed income. And interest rates are low right now. If the interest charges are making you poor today, what’s going to happen when rates inevitably rise in the future?

You probably don’t want to hear this but the obvious solution to your problem is to sell one of the properties and live in the other. You could then pay off the line of credit entirely and be left with plenty of cash to invest for income.

Probably the only thing that moving from a line of credit to a mortgage would achieve is to allow you interest rate certainty. The rates on a PLC are subject to change at any time. If you lock into a five-year mortgage, you are protected against rate increases in the interim. The downside is that the monthly payments would likely be higher and you’re already feeling the pinch.

I suggest you talk over these options with the bank and see if they can help find a solution that will ease the financial strain. If not, you need to think long and hard about whether you can really afford to keep two properties.

Do you have a money question you’d like to ask Gordon? Find out how to submit it here and then check out our Money section regularly to see if it was chosen for a response. Sorry, we cannot send personal answers.