Real Estate

Question on HELOC

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  • Aug 8th, 2016 12:40 pm
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[OP]
Newbie
Jan 17, 2009
64 posts
1 upvote

Question on HELOC

I posted this on real estate forum a while back but no replies. Perhaps it was the wrong forum:

It seems from reading a lot of different RFD threads in the personal finance and this forum many people have HELOCs. It seems that's a very common thing to do.

Myself I always felt we didn't need it but lately I've been thinking it might be worthwhile to get one. A few reasons why:
- It's difficult to get any type of credit if you've had job loss, big emergency etc so might as well try when your well off
- We're thinking of purchasing a second property for rental purposes in the next few years and don't want to use our investments for the 20% down-payment so we've started to save but when we get to that 20% we'll probably need more the way prices keep increasing lol.

My spouse and I have both stable jobs, almost debt free other than our house and I'm done my car loan this summer, husband is in yr 3. We don't carry balances in our credit cards and have very good credit. We have to renew/renegotiate our mortgage in summer of 2018.

Would like to know your thoughts if getting a HELOC good be a good step for us. Also, should I wait until 2018 when we're negotiating a new mortgage or do it now, does it matter?

BTW. we're in year 8 of home ownership with a single 3 bedroom house.
37 replies
Deal Fanatic
Feb 15, 2006
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It'll be hard to break the current mortgage that still has 2-3 years to go, to re-arrange that into a HELOC. But it won't hurt to ask. If your financial institution allows that to happen, then certainly get the HELOC now. You got the right reasons.

We've had HELOC since 1992, and it worked out well.
Deal Guru
May 29, 2006
10272 posts
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the HELOC can be done now, it doesnt affect your mortgage renewal, and you can use your HELOC as a downpayment on the second property.
Deal Fanatic
Nov 22, 2015
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rocking23nf wrote: the HELOC can be done now, it doesnt affect your mortgage renewal, and you can use your HELOC as a downpayment on the second property.
It matters if they want an auto-rebalancing HELOC.
[OP]
Newbie
Jan 17, 2009
64 posts
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superfresh89 wrote: It matters if they want an auto-rebalancing HELOC.
Can you clarify what 'auto-rebalancing' means? Is it going to impact having the HELOC with one bank if when we renew we decide to go with another institution?
[OP]
Newbie
Jan 17, 2009
64 posts
1 upvote
Looked it up, seems to be that as we pay down our mortgage the HELOC doesn't increase automatically. Currently we're with CIBC and their site says:
"Automatic rebalancing of your CIBC line of credit may take up to 60 days and is subject to the Maximum PLC Rebalancing Limit. The Home Power Plan limit cannot exceed an approved percentage of the value of the home at time of application."

So even though it happens max 60 days it can also not be increased because of the 'approved % ...'

I still wonder though ' Is it going to impact having the HELOC with one bank if when we renew we decide to go with another institution? '
Deal Guru
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Mar 23, 2008
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Edmonton
The approved percentage is often 80% of your home's appraised value (at the time of the setup).

So if your home was worth 500,000, 80% of that is 400,000. Let's say you had a mortgage of 320,000, and then you could have a HELOC of 80,000. If you made a principal payment of $1000, then your mortgage amount would go down to 319,000, and your HELOC limit would go up to 81,000.

At least, this is all how it worked with the RBC HomeLine program I had before. That's a combined mortgage/HELOC package they offer, similar to many other banks. I believe that's what meant as an "auto-balancing" HELOC previously.

C
Deal Fanatic
Nov 22, 2015
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princessa15 wrote: Looked it up, seems to be that as we pay down our mortgage the HELOC doesn't increase automatically. Currently we're with CIBC and their site says:
"Automatic rebalancing of your CIBC line of credit may take up to 60 days and is subject to the Maximum PLC Rebalancing Limit. The Home Power Plan limit cannot exceed an approved percentage of the value of the home at time of application."

So even though it happens max 60 days it can also not be increased because of the 'approved % ...'

I still wonder though ' Is it going to impact having the HELOC with one bank if when we renew we decide to go with another institution? '
It's 80% max LTV and 65% on the HELOC. For example, if your house is worth $500K, max LTV is $400K between both the mortgage and HELOC. So, if your mortgage is 300K, then you have room for a 100K HELOC. If you mortgage was 200K, then you'd have room for a 200K HELOC. However, the HELOC itself is capped at 65% - this means that in this example, even if the whole mortgage is paid off, the HELOC limit cannot exceed 325K (65% of 500K). Of course, if your house has increased in value, you can always start a new application with new appraisal to increase your limit.

Now... the question is whether you want the HELOC to rebalance itself. If you don't mind having a limit that won't ever increase, then get it from any lender. Doesn't matter where the mortgage is. However, if auto-rebalancing is something you'd like to have, then you should wait until maturity, as you don't want to pay appraisal and legal fees more than once for the same HELOC.

Your options are:

1) Get a HELOC from any lender, no plans to refinance and don't need rebalancing; Renew your mortgage with whichever lender at maturity.

2) Wait until maturity and refinance the existing mortgage into a rebalancing HELOC/mortgage product.

The cost for either option are the same: ~$250 for appraisal and ~$450 for legals
[OP]
Newbie
Jan 17, 2009
64 posts
1 upvote
superfresh89 wrote: It's 80% max LTV and 65% on the HELOC. For example, if your house is worth $500K, max LTV is $400K between both the mortgage and HELOC. So, if your mortgage is 300K, then you have room for a 100K HELOC. If you mortgage was 200K, then you'd have room for a 200K HELOC. However, the HELOC itself is capped at 65% - this means that in this example, even if the whole mortgage is paid off, the HELOC limit cannot exceed 325K (65% of 500K). Of course, if your house has increased in value, you can always start a new application with new appraisal to increase your limit.

Now... the question is whether you want the HELOC to rebalance itself. If you don't mind having a limit that won't ever increase, then get it from any lender. Doesn't matter where the mortgage is. However, if auto-rebalancing is something you'd like to have, then you should wait until maturity, as you don't want to pay appraisal and legal fees more than once for the same HELOC.

Your options are:

1) Get a HELOC from any lender, no plans to refinance and don't need rebalancing; Renew your mortgage with whichever lender at maturity.

2) Wait until maturity and refinance the existing mortgage into a rebalancing HELOC/mortgage product.

The cost for either option are the same: ~$250 for appraisal and ~$450 for legals
Thank you everyone this is very helpful. I'm leaning towards #2 just to avoid future hassles I don't think we need rebalancing as we are only interested in for the purposes of getting the 20% downpayment but I suppose it never hurts to have that.
Temp. Banned
Aug 7, 2011
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Vaughan
Hijacking - can you only get a HELOC from the same bank your mortgage is with?
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Feb 19, 2010
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superfresh89 wrote: Your options are:

1) Get a HELOC from any lender, no plans to refinance and don't need rebalancing; Renew your mortgage with whichever lender at maturity.

2) Wait until maturity and refinance the existing mortgage into a rebalancing HELOC/mortgage product.

The cost for either option are the same: ~$250 for appraisal and ~$450 for legals
OP, you can also negotiate with the FI to have them cover the appraisal and legal fees. Don't go into this process thinking that you HAVE to be on the hook for those additional fees.
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Mar 11, 2016
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Normally, Yes...the Big Banks have NO interest in doing a HELOC as a second mtg behind another companies first position....some secondary lenders may do this...
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squadz wrote: Hijacking - can you only get a HELOC from the same bank your mortgage is with?
Hey bud. Some major banks will offer HELOCs in 2nd position behind a different lender's mortgage. TD is well known for offering HELOCs behind mortgages with other lenders. I have transferred mortgages while keeping a separate TD HELOC in-place in 2nd position.

CIBC also does the same. There is a member here (Kiz5) who is a mortgage specialist for CIBC and he does this as well.
Kevin Somnauth, CFA
Principal Broker - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative
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Mar 11, 2016
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CdnRealEstateGuy wrote: Hey bud. Major banks will offer HELOCs in 2nd position behind a different lender's mortgage. TD is well known for offering HELOCs behind mortgages with other lenders. I have transferred mortgages while keeping a separate TD HELOC in-place in 2nd position.

CIBC also does the same. There is a member here (Kiz5) who is a mortgage specialist for CIBC and he does this as well.
cool..BNS does NOT...and NOT during my 10 yrs at TD up to 2001....only did this for commercial and ag 2nd mortgages...good to see they are more flexible now
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Fjr2005 wrote: cool..BNS does NOT...and NOT during my 10 yrs at TD up to 2001....only did this for commercial and ag 2nd mortgages...good to see they are more flexible now
I should of said "SOME major banks"...will edit, thanks.
Kevin Somnauth, CFA
Principal Broker - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative
Sr. Member
Jul 22, 2015
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Ontario
I love having a HELOC. There's no balance on it, but at least I know that if an emergency arose, I have the HELOC to fall back on instead of having to use credit cards.
Temp. Banned
Aug 7, 2011
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If you get a HELOC for a certain amount, can they bump it up like they do credit cards?

ie. get HELOC in today, in five years, you can get double what you initially got - do they let you know, do you have to go back or how does that all work?
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squadz wrote: If you get a HELOC for a certain amount, can they bump it up like they do credit cards?

ie. get HELOC in today, in five years, you can get double what you initially got - do they let you know, do you have to go back or how does that all work?
If the property increases, then they can increase the limit. Of course they will likely do an appraisal on the property. Max LTV for a HELOC and mortgage is 80% (65% for the HELOC portion).

If the lien registered on the system is lower than the new limit, then you have to get that changed as well.
Kevin Somnauth, CFA
Principal Broker - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative
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Jan 5, 2010
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Which banks have people had success with in having fees waived? TIA.
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jt05mi wrote: Which banks have people had success with in having fees waived? TIA.
Try TD.
Kevin Somnauth, CFA
Principal Broker - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative

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