HELOC Mortgages - Key Policy Change
A new key policy change is going to make it tougher for Canadians who have a HELOC (Home Equity Line of Credit) to get a second mortgage or to get a new mortgage and keep your HELOC. HELOC mortgages are a line of credit tied to your property. You only pay an interest rate on your HELOC if you use the funds. I have lots of clients with a HELOC that they never use, they have it for emergencies only. Normally if you had a $500,000 HELOC and used $100,000 of those funds the $100,000 would affect your debt service ratio. Toronto-Dominion Bank is now requiring that applicants prove they can afford a theoretical monthly payment based on the limit of the HELOC, not the outstanding portion. That means if you have a $500,000 HELOC you are not using, you would have to prove you could cover the approximate $2500 monthly payment it would cost if you were using all the funds. This may not sound like a big deal but this will literally knock out THOUSANDS of buyers!
Other major banks and expected to follow suit. Right now very few lenders have applied this new policy but it is projected that by next year all major banks will adopt this new policy. If you are considering getting a second property and want to keep your current HELOC you better buy before the year end with a lender who has not applied this policy yet. Your other options are to reduce your HELOC limit or close your HELOC.