We’ve been hearing about the mortgage rule changes for a while now, and here is the latest one emerging quietly behind the scenes:
Banks are tightening rules significantly for those with a HELOC (Home Equity Line of Credit) who are applying for a new mortgage (and not closing their existing HELOC).
As of now, TD has officially changed their underwriting guidelines, and it is widely expected that the rest of the banks will follow suit.
If you are planning on buying/refinancing, and you currently have a HELOC, I strongly suggest to review your options now, and secure your financing sooner than later.
How people get approved today:
Let’s assume you’re applying for a new mortgage on a rental property, second home or cottage.
Let’s also assume you have a HELOC with a $300,000 limit.
Today, most lenders will make you prove you can afford the payment on the money you owe in that HELOC. If your HELOC has a zero balance, it’s of little importance to your mortgage application.
If you do owe money in your HELOC, most lenders calculate your assumed payment based on:the HELOC balance owing
Here’s what’s changing:
Take the exact same scenario as above, but now assume the lender makes you prove you can afford a payment based on your HELOC credit limit.
Even though you might have a zero balance, the bank assumes you might use all of your available credit. It therefore adds a hypothetical $1,803.33 a month payment to the debts on your mortgage application.
Even if you are not a numbers person, you can imagine what adding this payments to your liabilities means : you can’t qualify for the mortgage financing you are looking for!
What can you do in this situation where you want a mortgage and you have a HELOC that you want to keep?
1. Find another lender:
2. Lower your HELOC limit
3. Close your HELOC
4. Get a co-borrower.
Final Thoughts: The higher rates go, the harder it’ll become to qualify for a home equity line of credit and/or a mortgage if you already have a HELOC. Get in touch with me to review your situation, and see what options are available to you. You can reach me at 647-893-2535 or firstname.lastname@example.org
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