Recently a number of banks have been ending their 80% loan to value HELOC‘s.
Today National Bank announced – following MCAP and Scotia Bank – that they are ending the 80% HELOC, effective September 7th, 2012. From now on all applications submitted after this date will need to have a maximum of 65% LTV in a LOC.
Cash back mortgages are expected to be the next target. Cash backs can be used as a down payment with some lenders. That benefit is not expected to last long.
Another not so prominent change was the qualification of short term fixed rate borrowers are now based on BOC posted rate.
All of these changes are initiated by OSFI’s B-20 guideline. We are expecting more tightening to come in the future.
New HELOC Applications:
All new secured lines of credit applications will have maximum LTV limit of 65%. Application which are submitted to National Bank before 6th. September 2012, will be considered for the 80% LTV provided that they are funded no later than November 30th 2012.
For porting or refinancing of an existing All-in-One after 7th. – the new 65% LTV requirement will apply.
New Re-advanceable Limit:
From now on at no time will the LOC portion and Re-advanceable Mortgage portion be able to be more than 65%.
Details With An Example:
Say you want to have your $100,000.00 home re-financed up to 80% Loan-to-value. You want the mortgage to be $40,000.00 and want to use the rest $40,000.00 to invest. At the same time you also want a HELOC for future use.
Prior to the regulation change if you had a re-advancable type HELOC then once you start to pay your principle down – any amount under 80% LTV would have been automatically added to your HELOC. So, you had the option to use that money for some other purpose.
Now, you have to keep paying the principle down till you cross the 65% mark. Once you go under 65% LTV – the additional amount will be re-advanced to your HELOC account. At no time will the LOC portion and Re-advanceable Mortgage portion be able to be more than 65%. This is a very straightforward example. Practically you should break your mortgage into pieces so that you start getting the benefit of the re-advancables right away.
Looking into our example – you start your All-in-One with $80,000.00 loan and it will now have three components.
- A Re-Advanceable Fixed or Variable Mortgage: ($100,000 x 65%) – $40,000 = $25,000
- A non Re-Advanceable Fixed or Variable Mortgage: $80,000 – ($100,000 x 65%) = $15,000
- Another Fixed or Variable Mortgage of amount $40,000.00
If you already have an 80% LTV re-advancable HELO then you should be able to continue till you make any changes to it.
Federally regulated lenders are only bound by this guideline. They may start to complaint about that but a lot of other lenders are still prepared to offer you a helping hand when you need to finish your basement.