Sept 4, 2012. If you’re seeking a home equity line of credit (HELOC) or readvanceable mortgage equalling 66%-80% of your home’s value, it would be wise to act soon. Rumour has it that some banks may start cutting back on their HELOC lending limits this month. This move relates to The Office of the Superintendent of Financial Institutions’ (OSFI’s) new B-20 underwriting guidelines, which require federally regulated lenders to limit new HELOCs to 65% LTV – from the 80% available today. Banks must comply with this new guideline by the end of their fiscal years. That makes the official implementation deadline October 31st, 2012 in most cases. But don’t count on lenders waiting until then. OSFI says that existing HELOC holders will be grandfathered. So if you need a 66%-80% LTV HELOC from a bank, time to get on it ASAP!
Why is this important to consider? A HELOC for real estate investors, in particular, is like a gift. You are able to tap into your existing home equity and leverage your wealth exponentially. You are able to make your dead equity work for you and have access to downpayment funds for your growing real estate portfolio. Based on the new rules, you will be seeing a drop of 15% if the equity you may be able to access. That’s LIKE LEAVING MONEY ON THE TABLE. You don’t have to access your entire HELOC loan and use it up, but it’s great flexibility to have it there if you need it. Why not set it up so you have the option? A HELOC is also great financial planning. It can be used as a source for emergency funds, children’s education, illness/healthcare costs and other unexpected costs. Great substitute for those pesky higher interest credit cards or personal lines of credit!
A lot of headline noise! There has been a lot of talk about mortgage rule changes in the last couple of months, and the newspaper headlines add more to the confusion. Note this particular change is from yet another body: Office of the Superintendent of Financial Institutions’ (OSFI). Although these were initially pitched as ‘guidelines’ it is clear now that many lenders will be adopting, and it may cause domino effect with other lenders that are not federally regulated who may follow suit. Currently what this rules means is that maximum HELOC will be 65% LTV, however, when I asked the various lenders, they had indicated so far that you can still get a combination mortgage + HELOC of up to 80% (as long as HELOC portion is 65% LTV or under). Based on the current track record of rule changes, I would not be surprised if this also changes…..
HELOCs come is different flavours, some are better than others, depending on your goals. You best bet is to work with a mortgage broker who understands the various nuances of these products and understands your goals, in order to come up with the best strategy.