This is interesting. Where would Canadians get the money to pay off huge loans in less then five years?
Huge apologies - our interest rate on the mortgage would NOT be variable, it would be fixed for 5 years, and then at renewal time, it would be up to us to decide if we wanted fixed or variable. I apologize for giving wrong information and leading everyone down the wrong path. 
And yes, **Throatwarbler Mangrove ** is right, our advisor is saying that one of the benefits to this plan would be writing off the interest on the investment as a tax deduction.
From fall 2005 to fall 2006, I was on maternity leave for 1 year (in Canada it is paid by Employment Insurance, and I was getting about $1,500 per month). Then I was working part-time for one year so I could be home with my daughter a bit more, from fall 2006 to present. Because I am back at work full time, we are expecting our financial situation to be a bit less dire. Plus in a few years our daughter will be in school so we won’t have the $800/month daycare cost.
I wouldn’t say our financial future is rosy by any means, but I believe we have been through the worst of it over this past year (knock on wood), and we just want to try to take care of our present needs and not screw up our future.
To clarify the terminology, “Term of mortgage” means the length of time for which the mortgage interest rate and other conditions is fixed, at then end of which, the mortgage terms are “renewed”. It is not the amortization period. (I’m using wording from the Canada Mortgage and Housing Corporation, it may be slightly different than typical US usage)
The OP has clarified that her interest rate is fixed for 5 years, at the end of which the terms would be re-negotiated. This is a typical arrangement for mortgages in Canada.
That makes sense. I took it to mean the whole amortization shedule is to be paid off in 5 years. :eek: So this could really be bad or a good depending on the economy for Canadians? I could only assume bad if you locked in a great rate early on, only to be forced to renegotiate 5 years later with horrible rates.
He said to pay off our debt, * Yes.
our existing mortgage, Maybe if the new rate is 1/2% or more less than the old rate, since it isn’t, then NO!
the city taxes, Yes
then set aside $28,000 for investing, Not only no, but hell no. Never gamble with borrowed money
and using the remaining $16,000 towards a vehicle. *** Probably not.
The money left over ($2-$3,000) would pay the penalties, fees, etc. Sure
He also said we can write off the interest on the loan on our income taxes. He is right there, for part of it in Canada. I think only the investment part.
So, after talking to my Bro (the tax expert), he sez : “Ok, if you pay off your CC and the taxes, what can you afford monthly? Sounds like you can afford a small 2nd, enough to pay off the CC and taxes, etc. Can you do that and still pay the loan on a car over 5 years @0%? Sounds like it, and if so get enough out of the 2nd for the downpayment on the car. No need to re-fi since you have a nice fixed rate now. .” You pay around $320/mo for CC, right?
As for the car, I am thinking you have good credit. If so then a new car with a 0% 60 month Manufacturors financing is a better bet than a used car (note, usually a used car is a better deal, but *not *if you can qualify for the 0%) After a trade in, and $2000 down, something modest like a Honda Fit would have payments of around $180/mo.
So, go down to your bank. How much would your monthly payments be on a 2nd Mort for around $22K? You have $320 to spend monthly with CC paid off. Payments on 2nd would be around $200?? +180 for car? Close. I’d go for it. (My advice, not my Bro’s)
(The assumption here is that the interest on the CC debt is like 18%, so a 2nd with 6% would be a sound decision.)