Over the past two years there have been a number of changes to mortgage rules with respect to mortgage insurance applications on rentals, refinancing, and lines of credit.
The current focus is on bringing the HELOC loan to value limit down to 65%.
The argument is that higher home equity lines support higher consumer debt which has reach record levels due primarily to low interest rates and the easy access to capital from home equity.
Some of the counter arguments are that home equity lines are a vital financing component for many small businesses that need to draw against their home equity to fund their business activities.
Funds from home equity lines can go into creating jobs and generating profits that will lead to higher taxes paid as well.
Reducing the amount of capital individuals can access will only lead to higher cost alternatives for small business owners.
While certainly not all home equity lines of credit are for funding small businesses, the ones that are not don’t necessarily use the funds to purchase all sorts of consumer goods and trips that they don’t really need or perhaps cannot afford.
With the size of the HELOC market in Canada at around $200 billion, federal regulators are concerned as to how this form of financing will impact the overall economy if interest rates start to climb.
While the regulations to change the lending limits on HELOC’s are only in draft form at the present time, it is expected that the proposed rule change will come into effect in the near future.
So if you have a home equity line of credit today, or are looking to acquire one in the near future, its going to be important to keep up with how the rule changes may impact you now and in the future.
The best way to stay on top of this issue is to work with an experienced mortgage professional who can keep you abreast of any developments with home equity line of credit programs and help you make the best mortgage financing decisions possible for you and your family.
A secured line of credit or secured operating line is available through banks and other institutional lenders. Private mortgage lenders do not provide secured lines of credit as they don’t have the administrative set up to deal with them.
Money drawn against a secured line is charged at variable interest rate pegged to prime. The rate will vary from prime minus one half to prime plus 2 according to the strength of the applicant’s credit and overall financial profile. There are no fixed interest rates available for a secured line of credit.
Before April of 2011, lines of credit could be acquired under programs for insured mortgages whereby the maximum amount available to borrow on the line could exceed 80% of the market value of the property.
The regulations governing institutional mortgage lending changed in April, 2011 to remove the option of getting mortgage insurance for lines of credit.
On a go forward basis, the maximum potential secured line of credit anyone can receive on a give property is 80% loan to value. The actual amount you are approved for may be less than 80% depending on the lender and your qualifying assessment.
When assessing the repayment ability of an applicant for a Toronto secured line of line, the lender will need to determine if the applicant has sufficient financial means to repay the debt responsibilities, assuming the line was fully drawn, at an interest rate equal to their 5 year fixed interest rate.
The main benefits of a secured line of credit is that once approved, the funds are available to you to use at any time, provided you are keeping up to date with the requirements of your financing commitment with the lender. And because secured lines of credit are charged out at a variable rate, they are completely open to repayment at any time without penalties. In most cases, the monthly debt servicing requirements for a Toronto secured line of credit is repayment of the interest incurred only.
If you would like to know more about a Toronto secured line of credit and all the many benefits and options this form of residential home mortgage provides, we suggest that you give us a call so you can book a time to speak with a member of our team and get all your questions answered.
A Home equity line of credit Canada is a very powerful home mortgage financing tool that all Canadians should think about utilizing if they have any short term expenditures that aren’t going to get cleared off their credit card soon or are expending to incur expenditures in the coming months and/or years that don’t fit within the net monthly cash flow available to them.
A home equity loan in the form of a line of credit is offered through banks and other institutional lenders across Canada, with many of the same national programs available to individuals all across the country.
In most cases, a home equity line of credit is registered as second mortgage financing behind the primary residential home mortgage already in place.
The idea is to create a ready supply of capital that can be drawn on at any time and when utilized, incur a very low cost of capital. Any outstanding principal can be paid back at any time without penalty as well.
If you don’t have an immediate need for a secured line of credit, then here are a few things to do to optimize your application.
First, only apply when your financing profile looks the best. This is not to say that you need to have perfect credit and be debt free outside of your home mortgage already in place. What it does refer to is making an application when your credit score is above 700 if possible and your short term sources of credit like credit cards and lines of credit are paid off or being paid off monthly as expenditures are incurred.
Second, do not look for the maximum line of credit that may be available to you, which in most cases will be up to 80% of the property value. By being under the maximum potential financing amount, there will be more lenders interested in your applicant. More lenders means more competition for your business, which in many cases will lead to lower interest rates.
Applying at a moment when things are looking the best is more likely to produce the best result.
Regardless if you need a Home equity line of credit in Canada right away or in the near future, the best way to approach the process in order to secure the best rates and terms is to work through an experienced mortgage broker who understands the market and the current lender offerings and requirements.
A HELOC is essentially a secured line of credit that is secured by a first or second mortgage registered against your home. Depending on the lender, you can secure a home equity loan in the form of a line of credit for up to 80% of the property value.
The reason why this is such a valuable cash flow management tool is that once its put into place, you have ready access to the funds whenever you need it. For the average person, a small unsecured line of credit may be sufficient for their unexpected cash requirements, but for those of us that are more likely to be exposed to larger cash flow slings, a HELOC loan is arguably the best option available.
In addition to the fact that you basically have cash on demand as was previously mentioned, you are also going to pay the lowest available financing cost for short term borrowing with no fixed repayment schedule. The challenge with short term cash demands is that it can take time to get a loan or funding in place, and if you’ve had some tougher financial times at the time of a loan request, it can be hard to secure, at least not for rates at or near prime.
When a home equity line of credit mortgage is in place, as long as your payments are kept up to date on all your banking facilities, there should be no reason why it is not available to you when you need it.
To qualify for a Toronto home equity line of credit, you’re going to need to have good credit and the lender will perform a repayment assessment on the basis of their longer term rates assuming full utilization of the line to make sure you have the cash flow to cover off future utilization of the funds available to you.
For the self employed business person, real estate investors, growing families looking to take vacations or upgrade their homes, and many other scenarios where significant amounts of short term financing are required, a Toronto HELOC loan can be a great solution.
If you’re in need of a HELOC loan or would like to get more information on HELOC loans, give us a call and get a member of our team to go over your options with you.