November 1 is fast approaching and homeowners must start organizing their mortgages and making sure they’re all set up just the way they like them before this deadline hits. But what is it about this deadline two months away that’s making so many people panic and pull out their mortgage papers? It’s the day the new OSFI rules go into effect. And once they do, your options on your mortgage are going to be quite limited. One of the mortgage options that’s going to be tightened is that of HELOCs, including re-advanceable HELOCs.
Readvanceable HELOCs are great savings and cash flow vehicles that homeowners can use to give them more flexibility. With this type of loan, every time you make a payment to the principal amount on your mortgage, your HELOC increases by that amount. So if you have a readvanceable HELOC and make a payment of $1,200 on your mortgage in one month, your HELOC will go up by $1,200. A look at the chart below shows how readvanceable HELOCs work, and how as you reduce your mortgage, more of your HELOC becomes available.
You’re still paying off your mortgage and building up your home equity. The difference is that the equity is now sitting there ready to draw on at any time. And while your equity is always “just sitting there,” with this type of HELOC, it’s actually just sitting around in an account. And all you need to do to borrow against it is take it out. No messy refinancing process or second mortgage application. You’ve already applied for this type of mortgage, and the money is there for you to use. At least, that’s how it works today.
Readvanceable HELOCs are more than just great emergency funds and vehicles for extra spending too though. They can actually protect you against risk. Because you’ll have that extra fund just sitting there, you’ll have access to cash when you need it. And you don’t need to pay any additional money or go through any long processes to get it.
So why is this advice so pertinent now?
Because November 1 isn’t that long away, and that’s when the amount you can borrow on your HELOC is going to change. The OSFI has imposed new rules limiting HELOCs, even the readvanceable type, to only 60 per cent of a property’s equity rather than 80 per cent. Anyone applying after November 1 will have to take no more than 60%, however the readvanceable HELOCs that have already been set up won’t be changed.
With it being just a couple of months away from the OSFI’s new rule changes, it’s a prudent time for homeowners to look over their mortgage documents, or carefully consider their options if they’re first-time buyers, and get the terms they need now. Before it’s too late.
If you have questions about the new mortgage rules, or your own strategy for getting around them, leave a comment below. Or, join us on our Facebook page and get in the conversation, plus read other interesting mortgage news from around the country.
