Personal Finance

Help with Scotiabank STEP and overall process please!‏

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  • Jul 14th, 2010 8:34 am
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Newbie
Jul 12, 2010
2 posts
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Help with Scotiabank STEP and overall process please!‏

Hi all,

I'd like to get some input from you on my situation. I'm new but I've read all day on the topic. Basically I am interested in paying down my mortgage faster using a HELOC via Scotiabank STEP. I learned about the concept from reading about Manulife One, but figured I can somehow emulate this with Scotiabank so that I don't have to transfer. I have to say however that the simplicity of M1 is attractive, even though their rates are sketchy (apparently).

My stats:

Regular checking account: $5k
High interest savings account: $48k
TFSA: $10k

STEP accounts:
mortgage 1: $60k @ 5yr/5.65% fixed (less than 2 yrs remaining)
mortgage 2: $58k @ 5yr/5.65% fixed (less than 2 yrs remaining)

Other accounts:
Personal line of credit: $17k limit, balance of 0.

My online STEP profile says I have ~$10k borrowing dollars available to me in the STEP but I have no account linked to it to access it. The overall limit is $133k.

What should I do?
a. Link my Personal LOC into the STEP? What would the new limit be? 27k?
b. Create a new LOC under the STEP? Should I cancel the personal LOC then?
c. Something else?

What is the monthly process once I have the STEP LOC? Currently I just dump any surplus into my high interest savings account. I've only made mortgage prepayments twice, that is, last two times I renewed my mortgage.
I've been trying to save up 8-12 months of expenses in case of unemployment, emergencies, as well as for vacation etc. I didn't really realize that a HELOC could still allow me to access the savings until now, and hence why I haven't made many prepayments.

What should I do with my savings? Dump into the HELOC and carry a huge positive balance? Prepay mortgage? This is where I'm not sure what to do next. If I prepay mortgage, the amount will appear as an increase in my HELOC will it not?

Also a good chance of moving in the next 2-3 years to a bigger place.

Thanks in advance!
5 replies
Deal Addict
Feb 4, 2008
3107 posts
169 upvotes
I don't think Scotia Step is set up to accomplish what you want. I am not sure it if automatically readvances.

Check out National Bank's All in One Account. Much better product.
www.mortgagecalculatortoolkit.com (cut and paste it)

Do your mortgage math correctly!
Deal Fanatic
Feb 17, 2007
5038 posts
1276 upvotes
Well, yes, if you pay down the Mortgage, your available credit will raise by that much. But, it won't be automatically available on your LOC. Each LOC, even part of the STEP, has a pre-set credit limit, not to exceed your overall credit available. When your available credit increases from paying down one of the loans in the STEP, you have the option of calling/visiting your branch to have them raise the limit on your existing LOC/loan or open a new one.

Also, I don't think you'll be able to convert your existing personal LOC into a STEP LOC, you'll simply have to open a new one using the available credit.

Hope that clears up some questions for you.

Oh, and I don't recommend having a positive balance on any Scotia LOC. First they don't pay interest on it, so might as well keep it in a savings (People's Choice or ING, etc). And second, Scotia doesn,t allow the use of a LOC like a chequing-type account. Although they provide cheques for the LOC, they won't allow pre-authorize debits or most "chequing account type" transactions.
Deal Addict
Oct 4, 2009
1717 posts
585 upvotes
Montreal
Scotia must love you as a customer. You've got 48k in a savings account at 1%(before taxes) while simultaneously paying 5.65% on a 118k mortgage? :-0
Nice 4.65% spread you're giving them on that 48k.

Apply that 48k to your mortgage as quickly as your mortgage terms allow. You're just giving them free money for no reason.

Can't help you with the rest since I know nothing about Scotia but the rest of the details aren't all that important compared to fixing the massive leak above.
[OP]
Newbie
Jul 12, 2010
2 posts
0
WHO wrote:
Jul 14th, 2010 7:43 am
Well, yes, if you pay down the Mortgage, your available credit will raise by that much. But, it won't be automatically available on your LOC. Each LOC, even part of the STEP, has a pre-set credit limit, not to exceed your overall credit available. When your available credit increases from paying down one of the loans in the STEP, you have the option of calling/visiting your branch to have them raise the limit on your existing LOC/loan or open a new one.

Also, I don't think you'll be able to convert your existing personal LOC into a STEP LOC, you'll simply have to open a new one using the available credit.

Hope that clears up some questions for you.

Oh, and I don't recommend having a positive balance on any Scotia LOC. First they don't pay interest on it, so might as well keep it in a savings (People's Choice or ING, etc). And second, Scotia doesn,t allow the use of a LOC like a chequing-type account. Although they provide cheques for the LOC, they won't allow pre-authorize debits or most "chequing account type" transactions.
So you're saying then that any positive balance doesn't count against my principle like an all-in-one account can do and there is no other way to knock down daily interest other than the terms set by the mortgage prepayment rules? So while STEP is flexible, it's still not quite as good as an all-in-one account. Is that a fair statement?
Deal Fanatic
Feb 17, 2007
5038 posts
1276 upvotes
Gandharva wrote:
Jul 14th, 2010 8:16 am
So you're saying then that any positive balance doesn't count against my principle like an all-in-one account can do and there is no other way to knock down daily interest other than the terms set by the mortgage prepayment rules? So while STEP is flexible, it's still not quite as good as an all-in-one account. Is that a fair statement?

Yeah, as the name says, it's really just a Total Equity Plan, meaning you use the Equity in your real estate to gain better borrowing opportunities/rates but it's not an All-In-One type of setup. In STEP, all loans are stand-alone, not interconnected.
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