Readvanceable Mortgage

A readvanceable mortgage combines a mortgage with a home equity line of credit (HELOC). As you make payments towards your mortgage, the credit limit of your line of credit will increase. This allows you to borrow more money as you repay your mortgage. It also means you’ll have access to an increasing amount of money to quickly withdraw whenever you need funds, such as for emergency expenses, investment opportunities, or big-ticket items.

Let's break down the process to better understand how readvanceable mortgages work. When you opt for a readvanceable mortgage, you’ll have a mortgage portion and a line of credit portion. As you make regular mortgage payments, your credit limit on the line of credit automatically increases, giving you access to more funds. This is called rebalancing. It can take up to 60 days or longer for your credit limit to increase after each payment.

Eligibility requirements typically include a good credit score, stable income, and sufficient home equity in the form of a 20% minimum down payment. Common features of readvanceable mortgages include variable interest rates based on the current prime rate and flexible repayment terms on the HELOC, and the choice of a fixed or variable mortgage rate on the mortgage.

Each mortgage payment is composed of two portions. One portion goes towards your principal, while the other goes towards interest. The payment's principal portion increases your HELOC’s credit limit, all without any home appraisals or extra legal fees. For example, your monthly mortgage payment may be $1,000, with $700 going toward the principal and $300 towards interest. For mortgages that readvance automatically, this mortgage payment may increase your HELOC’s credit limit by $700, allowing you to re-borrow $700 without needing to apply for another loan. However, the exact amount that your HELOC limit increases by will depend on the combined loan-to-value (LTV) of your advanceable mortgage.

Most major banks allow you to borrow up to 65% of your home’s value through the HELOC portion. The home value used is your home’s appraised value at the time of application. However, some credit unions, such as Meridian’s Flex Line Mortgage, allow you to borrow up to 80% through the HELOC portion. Of course, any amount that you borrow will have to be repaid eventually.

Some banks require you to have a bank account with them to transfer money between your mortgage or HELOC and your bank account. For those that don’t require you to bank with them, you can withdraw cash from your HELOC using options such as a cheque.

Readvanceable mortgages give you flexibility for when you need it. You do not have to borrow money from the line of credit if you don’t need it. Instead, the credit is there for you to borrow at any time, such as if you have a sudden unexpected expense or need access to money quickly. Having a readvanceable mortgage open allows you to not worry about applying for loans or fussing over a mortgage refinance when you already have access to your equity.

The Smith Maneuver involves turning your line of credit portion into an investment loan. By re-borrowing money that you have paid, you can transform your mortgage into a tool that you can use to save for retirement while also saving on your taxes.

Readvanceable mortgages are used in the Smith Maneuver, which allows you to save taxes by making the interest of your mortgage tax deductible. To do this, you will turn your mortgage into an investment loan by investing the line of credit portion of your readvanceable mortgage. To learn more about how you can use your home equity to invest and to make your mortgage interest tax-deductible in Canada, visit our Smith Maneuver tax strategy page.

For Canadian homeowners, readvanceable mortgages offer numerous advantages. Firstly, they provide increased financial flexibility, allowing you to access funds for renovations, investments, or emergencies without needing to apply for a separate loan. Additionally, these mortgages can result in significant savings on interest, especially if the borrowed funds are used to pay off high-interest debt. Lastly, readvanceable mortgages can simplify your financial management by consolidating your debt under one umbrella, making it easier to monitor and repay.

TD Home Equity FlexLine

The TD Home Equity FlexLine is split into two portions: a revolving portion and a term portion. The term portion is your regular mortgage. The revolving portion is a HELOC with a credit limit that increases as you pay your term portion. The HELOC has no prepayment charges, meaning you can pay only interest or even pay it off at any time.

The term portion can be fixed or variable, while the revolving portion is a variable interest rate based on TD’s prime rate.

RBC Homeline Plan

RBC’s Homeline Plan combines RBC’s Royal Credit Line (line of credit) with an RBC mortgage. You can borrow up to 65% of your home’s appraised value through the Royal Credit Line, which you can access through online banking, mobile banking, ATMs, branches, and cheques.

Scotia Total Equity Plan (STEP)

Scotiabank’s STEP allows you to combine multiple products all under one plan. You can choose to have a mortgage, a line of credit, or a line of credit with an access card under STEP. STEP has automatic limit increases, which means that it automatically increases your line of credit limit with each payment.

You can also choose to have a fixed mortgage interest rate, a variable rate, or even both with a Scotiabank Long and Short mortgage.

CIBC Home Power Plan

CIBC’s Home Power Plan has automatic rebalancing, which means that your mortgage payments will automatically increase your line of credit limit. However, it can take up to 60 days after each mortgage payment to increase your credit limit.

BMO Homeowner ReadiLine

The BMO Homeowner ReadiLine allows payments made towards the installment portion to automatically increase the credit limit of the revolving portion of the plan. You can easily withdraw funds to borrow through online banking, ATMs, cash advances at a branch, or cheques.

National Bank All-In-One

National Bank's All-In-One allows you to choose a fixed, variable, or combined rate. Your line of credit's limit automatically increases as you make principal payments, and you can access your line of credit through online banking, at an ATM, or using your debit card.

Under your AIO plan, there is a fee of $7 per month for each bank account. This fee gives you unlimited transactions, such as debit card purchases, withdrawals, bill payments, and transfers.

Meridian Flex Line Mortgage

The Meridian Flex Line Mortgage is only available in Ontario, with automatic readvances monthly. The main advantage of Meridian’s Flex Line Mortgage is that Meridian isn’t a bank. As a credit union, they do not have to follow federal regulations that limit the HELOC portion of a readvanceable mortgage to 65% of the home's value. Instead, Meridian’s Flex Line Mortgage allows you to borrow up to 80% of the value of your home through your HELOC. Once you have paid off your mortgage, this gives you a higher credit limit than the other major banks.

Meridian also isn’t required to conduct a mortgage stress test. While they still conduct it, failing the stress test doesn’t automatically disqualify you from getting a mortgage with Meridian.

What is a readvanceable mortgage?

A readvanceable mortgage is a type of mortgage that combines a traditional mortgage with a Home Equity Line of Credit (HELOC). As you make mortgage payments, the amount available in your HELOC increases, allowing you to re-borrow funds up to your credit limit.

How does a readvanceable mortgage differ from a standard mortgage?

Unlike a standard mortgage with a fixed borrowing limit and repayment schedule, a readvanceable mortgage offers a revolving credit feature. This means you can borrow, repay, and borrow again up to your established credit limit as you pay down the mortgage principal.

Can I use a readvanceable mortgage to consolidate debt?

Yes, one of the benefits of a HELOC is that you can use the funds for any purpose. This allows you to consolidate high-interest debt under one financial product, which can lead to significant interest savings and simplify your financial management.

Are there any risks associated with readvanceable mortgages?

While readvanceable mortgages offer flexibility and potential savings, they also come with risks. If rates increase, the variable interest rates on the HELOC can lead to higher interest payments. Having the ability to re-borrow funds also means the possibility of accumulating excessive debt for those who are not disciplined with their financial management.

How can I maximize the benefits of a readvanceable mortgage?

To maximize the benefits, ensure you only borrow what you can comfortably afford to repay and have a clear plan for using the borrowed funds. For example, keeping the credit available for an emergency is a good use of a readvanceable mortgage, and so is using the borrowed funds for safe investments or debt repayments that offer the highest returns or savings.

Where can I get a readvanceable mortgage in Canada?

Readvanceable mortgages are available through major banks and credit unions. Canada’s big six banks (TD, RBC, Scotiabank, BMO, CIBC, and National Bank) all offer readvanceable mortgages.