Heloc

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Jul 20th, 2015 6:16 pm

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Jul 13th, 2015 11:18 pm

rtmrrtmr [OP]: Member; May 19, 2013; 253 posts; 134 upvotes

Jul 13th, 2015 11:18 pm

Heloc

Looking to purchase my first home as a rental property that is owner occupied in BC. I would like to have a LOC in case there are any repairs that need to be done or any unexpected expenses. If I put down $50,000 for a $200,000 house then I should be able to get a $10,000 HELOC. From what I've read, I have 3 options.
1) Get a HELOC with the mortgage.
Pros: don't have to pay extra legal and appraisal fees.
Cons: it would be a collateral mortgage and I would have to pay legal fees to switch lenders in the future.
2) Get a HELOC in the second position. As far as I know, only TD and Manulife do this but Manulife requires a minimum $50,000 and TD's rate is prime + 1.5%?
Pros: wouldn't have to get a collateral mortgage
Cons: won't be able to get it right away with Manulife or would have to pay an extra 1% interest with TD. would also have to pay legal and appraisal fees upfront.
3) Get a readvanceable mortage.
Pros: HELOC limit would increase with every mortgage payment. don't have to pay extra legal and appraisal fees.
Cons: I think this would be a collateral mortgage and the interest rate may be higher on the mortgage.
Can somebody confirm whether I have the facts right? I would also appreciate suggestions as to what I should do.
Thanks

4 replies

Jul 14th, 2015 1:41 pm

CdnRealEstateGuy: Deal Guru; Feb 2, 2014; 10413 posts; 3046 upvotes; Toronto

Jul 14th, 2015 1:41 pm

rtmrrtmr wrote: ↑Looking to purchase my first home as a rental property that is owner occupied in BC. I would like to have a LOC in case there are any repairs that need to be done or any unexpected expenses. If I put down $50,000 for a $200,000 house then I should be able to get a $10,000 HELOC. From what I've read, I have 3 options.
1) Get a HELOC with the mortgage.
Pros: don't have to pay extra legal and appraisal fees.
Cons: it would be a collateral mortgage and I would have to pay legal fees to switch lenders in the future.
2) Get a HELOC in the second position. As far as I know, only TD and Manulife do this but Manulife requires a minimum $50,000 and TD's rate is prime + 1.5%?
Pros: wouldn't have to get a collateral mortgage
Cons: won't be able to get it right away with Manulife or would have to pay an extra 1% interest with TD. would also have to pay legal and appraisal fees upfront.
3) Get a readvanceable mortage.
Pros: HELOC limit would increase with every mortgage payment. don't have to pay extra legal and appraisal fees.
Cons: I think this would be a collateral mortgage and the interest rate may be higher on the mortgage.
Can somebody confirm whether I have the facts right? I would also appreciate suggestions as to what I should do.
Thanks

D-Get just a mortgage with a lender that offers HELOCs. If/once you need a HELOC later down the road, set it up then.

Kevin Somnauth, CFA
Principal Broker/Owner - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative

Jul 17th, 2015 3:14 pm

Speedy1: Deal Fanatic; Jun 29, 2007; 5600 posts; 2143 upvotes; Vancouver

Jul 17th, 2015 3:14 pm

rtmrrtmr wrote: ↑Looking to purchase my first home as a rental property that is owner occupied in BC. I would like to have a LOC in case there are any repairs that need to be done or any unexpected expenses. If I put down $50,000 for a $200,000 house then I should be able to get a $10,000 HELOC. From what I've read, I have 3 options.
1) Get a HELOC with the mortgage.
Pros: don't have to pay extra legal and appraisal fees.
Cons: it would be a collateral mortgage and I would have to pay legal fees to switch lenders in the future.
2) Get a HELOC in the second position. As far as I know, only TD and Manulife do this but Manulife requires a minimum $50,000 and TD's rate is prime + 1.5%?
Pros: wouldn't have to get a collateral mortgage
Cons: won't be able to get it right away with Manulife or would have to pay an extra 1% interest with TD. would also have to pay legal and appraisal fees upfront.
3) Get a readvanceable mortage.
Pros: HELOC limit would increase with every mortgage payment. don't have to pay extra legal and appraisal fees.
Cons: I think this would be a collateral mortgage and the interest rate may be higher on the mortgage.
Can somebody confirm whether I have the facts right? I would also appreciate suggestions as to what I should do.
Thanks

How many lenders other than major banks offer heloc with a mtg? If it is with a major bank, collateral mtg is not automatically a bad thing AND interest rate on mtg is not necessarily higher. I just found recently about mtg segments (up to 5) with my RBC home plan. I will convert my heloc balance (at bank prime) to a mtg segment (likely for 2 yrs at 2.09%) and still have heloc available credit. All this at no extra cost to me other than going in and signing a piece of paper.

Your (1) & (3) are essentially the same. i.e. heloc with mortgage is essentially readvanceable mortgage since heloc limit would increase with every mortgage payment.

Jul 20th, 2015 5:57 pm

jmichou: Sr. Member; Sep 26, 2007; 680 posts; 121 upvotes; Toronto

Jul 20th, 2015 5:57 pm

I'm in the same boat but I'll be renewing my mortgage instead of a new property and struggling to see if I should get a Heloc together with a mortgage or go with Option2.
Aside from the lawyers fees & appraisal cost, what are the other cons? I've been reading on the mortgage thread and it seems like having a collateral mortgage is a pretty bad thing.

With option2 (Heloc in second position), don't you need to go through the legal fees & appraisal process and use the home equity as a collateral?

Jul 20th, 2015 6:16 pm

dougboswell: Deal Addict; Jul 11, 2010; 1283 posts; 321 upvotes; Toronto

Jul 20th, 2015 6:16 pm

You can get the HELOC portion at P + .5%. Why would you wait until further down the road and pay an extra 1%. Also the lender may want an appraisal. You don't have to use the LOC portion and you won't be paying any interest on it until you do. The lawyer's fees to transfer to a new lender are small compared to the potential savings in interest.

Doug Boswell
intelliMortgage Inc. Brokerage #12326
FSRA #MO09002332

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