What is a Readvanceable Mortgage / HELOC?

How to Make Your Home Equity Work for You

A readvanceable mortgage is a special type of mortgage that has at least two parts:

1. a "mortgage" portion
2. a line of credit (LOC) portion, similar to a Home Equity Line of Credit (HELOC) but much better...

I like to call this product a RELOC

As you make your regular mortgage payment, some of that payment goes to interest and the rest goes to reduce the principal (balance-owed). Unlike a regular mortgage, however, in a re-advanceable mortgage the amount paid to principal automatically becomes available for you to access via a line of credit. This is an immensely powerful financial tool.

For example, if your mortgage balance decreases this month by $1000, your LOC limit will increase by the same $1000. As the sum of your mortgage balance and LOC limit is constant (often referred to as the Global Limit), the more regular mortgage and lump-sum payments that you make, the more your credit line limit grows! It is important to understand that you don't have to reapply for the additional credit and your growing credit line has a very attractive interest rate, in fact HELOC rates in Canada are often two or three percent cheaper than an unsecured personal line of credit.

The video will help illustrate the dynamic interaction on how the line of credit interacts with your mortgage balance:

Why Would I Consider a Readvanceable Mortgage?

In today’s real estate environment, homeowners often have an immense amount of wealth locked into their homes. This mortgage is an amazing tool in the right hands, the "Swiss Army Knife" of mortgages for responsible borrowers. It encourages the borrower to pay down their mortgage faster, without the fear of being short of cash at some future point when they really need it, and it allows them to access and leverage their home equity for other important needs at a stroke of a pen.

We all know that the more we pay towards the mortgage, the faster the mortgage goes away and the less interest that we have to pay over time. Now you can have your cake and eat it too! (Pay down the loan and save on interest without losing access to your cash/equity).

Who Can Benefit?

This mortgage / HELOC product is best-suited for borrowers with the following characteristics:

• You own your own home or other residential property
• Your current mortgage balance-owing is 80% or less than your current property value.
• You are disciplined with your finances.
• You are interested in ways that you can leverage or access the equity that you have built up (or will build up) in your home to meet other financial objectives
• You are currently employed and have a good credit rating

How to Use Your Readvanceable Mortgage / HELOC?

Readvanceable mortgages are great for people who might need a growing source of funds. Follow the links for for detailed discussion and illustrations on how it might apply in your situation.

• Home improvements
• Garden or rental suite
• Acquire and/or develop vacant land
• Down payment for a rental property
• Down payment to help kids purchase their first home
• Buy a property in a foreign country
• Cottage or vacation property
• Unexpected emergencies or job loss
• Rainy-day fund substitution
• Investments
• The Smith Maneuver 
• Business expenses 
• Health care expenses
• Education costs
• Retirement - access to funds instead of a Reverse Mortgage

As licensed mortgage professionals, we know exactly what it takes to qualify you for a mortgage and can help you compare options to find the mortgage that is right for you. We believe that an educated buyer is an empowered buyer.