Personal Finance

Cons of increasing HLOC on existing house?

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  • Nov 10th, 2013 3:18 pm
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[OP]
Newbie
Feb 9, 2013
40 posts
1 upvote

Cons of increasing HLOC on existing house?

Hello,

I remember reading somewhere here that it isn't a great idea to register a high secure home line of credit against your house, but can't find the details, so can someone please explain again why it's not a good idea.

I am looking to buy a new house and increasing the SHLOC as the down payment is one of the options the bank gave.

Thanks.
6 replies
Deal Expert
Aug 2, 2001
15933 posts
6120 upvotes
Increasing your existing HELOC may cause the need for an appraisal, which you will most likely be responsible for.
(I am assuming from the thread title you are talking about increasing an existing one)
Deal Fanatic
User avatar
Apr 4, 2009
7688 posts
777 upvotes
North York
Is OP going to be selling the existing home with the HELOC?

If yes, then a reasonable bank, will not worry too much about how large your HELOC is. They would be concerned about how much net cash you actually have and how large the mortgage on the new home will be. There are cavets here. The bank may approve the 2nd mortgage contingent of the sale (not closing) of the 1st house (before closing date of new house).

If you don't sell your existing home, then, having a large HELOC would be an issue as the bank would likely look at the existing HELOC (max) + mortgage on new home when calculating your ratios.
Banned
User avatar
Feb 15, 2008
26318 posts
3201 upvotes
Calgary
One of the 'cons' is that you're just likely to spend more money. If lots of cheap credit is available.

Some people can handle walking around with a $200k line of credit, and never drawing upon it. Lots can't. People tend to make better spending decisions when credit is scarce.
TodayHello wrote:
Oct 16th, 2012 9:06 pm
...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
[OP]
Newbie
Feb 9, 2013
40 posts
1 upvote
Thanks for the replies.

I want to do some renovations on my current house, but my existing LOC isn't big enough to cover the cost. Obviously, I could get a loan but it's just so much easier to draw from the LOC. I know there is a appraisal cost to do that (close to $900) but I am more concerned with the negative effective of registering a much large loan against my house (if there is any).
Banned
User avatar
Jul 16, 2003
10398 posts
1464 upvotes
Toronto
There is not such a thing as a "negative effect of registering a much large loan against the house". Based on what you are saying, looks like you already have a LOC with your bank, so extending the size of the lien registered against the property wont do any harm. Credit exists to be used when needed, and since you have already determined that you need access to a certain amount, the whole purpose of that product (Heloc) is to allow you to tap into that equity.
Some people show concerns about having a Heloc with a high limit (say 200k) as other lenders would see that you have access to large amounts of credit, but as long as it is not used up, it should not be included in GDS/TDS calculations when the next lender analyzes your mortgage application. There is no negative impact on credit for simply having a large LOC.

On a side note, your situation is a good example of why sometimes a "collateral mortgage" (a product that that fear mongers love to yell about on the media) is an awesome product. If you had a collateral mortgage and allowed the lender to register charge of a much higher amount, today you would likely be able to increase the limit without spending those $900.00. By the way, the $900.00 your bank refers to is NOT the cost of appraisal.. it is the cost to modify and re-register a charge against your property (using the services of a title company such as First Canadian Title to take care of the legal paperwork) so that they can give you a larger LOC.
Andre Oliveira - Mortgage Agent
Mortgage Intelligence - FSCO# 10428
Member
Jan 3, 2006
362 posts
10 upvotes
For our last house we saved a bunch of money by bridging the purchase with our HELOC instead of the using the bank and their insane fees for bridging.

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