The HELOC Clock Starts Ticking
If you want a HELOC or readvanceable mortgage equalling 66%-80% of your =
home value, be ready to act soon.
We're hearing that some banks may start cutting back on their HELOC = lending limits by the end of this month.
These moves relate to OSFI=92s new B-20 = underwriting guidelines, which require federally regulated lenders = to limit new HELOCs to 65% loan-to-value (LTV), from 80% today.
Banks must comply with this new guideline by the end of their fiscal = years. That makes the official implementation deadline October 31, 2012 = in most cases. But don't count on lenders waiting until then.
OSFI says that existing HELOC holders will be grandfathered. So if =
you need a 66%-80% LTV HELOC from a bank, get approved while the =
getting=92s good.We're hearing that some banks may start cutting back on their HELOC = lending limits by the end of this month.
These moves relate to OSFI=92s new B-20 = underwriting guidelines, which require federally regulated lenders = to limit new HELOCs to 65% loan-to-value (LTV), from 80% today.
Banks must comply with this new guideline by the end of their fiscal = years. That makes the official implementation deadline October 31, 2012 = in most cases. But don't count on lenders waiting until then.
Other key points:
- Borrowers who modify their HELOC after the rule changes take effect = will potentially be subject to the new 65% LTV limit. So make sure you = have your HELOC set up exactly the way you want it.
Borrowers who obtain = readvanceable mortgages under the new guidelines can still get them at = 80% LTV, but 15% of that will need to be amortizing (i.e., various = lenders will still offer you a 65% LTV secured line of credit plus a 15% = LTV mortgage, for 80% total)
- If, under the new regime, you have a readvanceable mortgage with two = parts:
1) a secured line of credit portion, and
2) an additional amortizing mortgage portion
=85then the mortgage portion will not be readvanceable if the line of credit = portion is greater than or equal to 65% of your home value. (Note: = Different lenders may have different policies when it comes to = readvancing under the new B-20 rules. We'll report on this further as = more information becomes available.)
- So far, no major lenders have announced HELOC LTV changes in = relation to the OSFI guidelines.
- Investment borrowing (using strategies such as the Smith Manoeuvre)
- Borrowing for education
- Rental property investment
- Value-adding home improvements
- One-time debt consolidation
- An alternative to higher-rate loans
- A down payment source for a second property
- An emergency backup fund
Rob McLister, CMT
