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Tuesday, August 30th, 2016

HELOC Countdown Begins

Those interested in a readvanceable mortgage (or HELOC), valued between 66% and 80% of their home’s value had best act with haste.

Lending limits for home equity lines of credit (HELOCs) could start falling as soon as the end of August, according to some new information. A trusted mortgage broker in Vancouver can help provide more detail regarding when specific banks are expected to lower limits.

Lenders that are federally regulated are being forced to limit the loan-to-value ratio (LTV) from the current 80%, down to 65%, as per the new B-20 underwriting guidelines from the Office of the Superintendent of Financial Institutions Canada (OSFI).

Banks have no choice but to implement the new regulations before their fiscal years ends. In most cases, this results in a deadline for implementation of October 31, 2012. Though expect most lenders to implement the new rules before then.

According to the B-20 guidelines, borrowers currently using HELOCs are automatically grandfathered and can continue operating with the currently existing LTV limit of 80%. For this reason, those without a HELOC but interested in locking one in with an LTV above 65% should act as soon as possible. A trusted mortgage broker in Vancouver can advise you whether you should take any action, based on an analysis of your current situation.

Something else to consider is that those who reconfigure their HELOC after the new rules have been implemented will also be forced to operate under the 65% limit. If you are not satisfied with how your HELOC is currently set up, then we advise you fix it quickly.

No large lenders have yet implemented new HELOC LTV rules.

If you are not interested in a detailed explanation from a trusted mortgage broker in Vancouver then continue reading below for a brief explanation.

A HELOC is basically a revolving line of credit secured against an individual’s home.

It lets an individual borrow funds against their home and then use those funds as per their own discretion. Currently, in Canada, the government has imposed a LTV limit of 80%, though this is changing with the new B-20 regulations.

Funds can be borrowed up to the maximum LTV limit permitted by the borrower’s financial institution. Interest is only paid on credit actually used.

Note that variable rate mortgages and HELOCs are not the same thing. A HELOC’s rate can change as per your lender’s discretion; terms and rates are not guaranteed.

On the other hand, variable rate mortgages typically use a rate tied to the prime rate of the lender. If the prime rate does not change then the variable mortgage rate typically does not change.

For financially savvy and disciplined individuals, HELOCs can provide a lot of advantages. But for those not so disciplined, a HELOC may be a very bad idea. If the credit is invested well, it can have a substantially positive effect on the borrower’s net worth. But for those who spend the money on vacations, sailboats or plasma TVs, not so much. Those who are unsure whether a HELOC is right for them should consult a trusted mortgage broker in Vancouver.

 

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