Home equity line of credit: New rules in Canada
New mortgage rules have been implemented. This makes it harder for Canadians to access their home equity. Qualifying for home equity line of credit options is now harder due to new rules. These rules come with higher interest rates.
Let’s break down why these rules pose a problem for Canadians looking to leverage their home equity to acquire financing.
What is a Home Equity Line of Credit?
This is a form of credit that lets homeowners borrow money against their home equity. Home equity is the difference between the market value of your home and any outstanding mortgage amount owed. A HELOC will help borrowers access funds readily.
HELOC’s come with variable interest rates. They can be used for various purposes, including:
- Home Renovations
- Debt Consolidation
- Emergency Costs
- Pay off other sources of debt
Different types of HELOC’s
There are two main types of HELOCs:
- Traditional HELOC:
This is a very common type of home equity line of credit. Here, the borrower is given a credit limit and has access funds within that credit limit. The borrower can access funds during a draw period. This is the time period within which you can withdraw funds.
The draw period for this kind of HELOC last between 5 to 10 years normally. Subsequently comes the repayment period which lasts between 10 to 20 years. Borrower’s are required to repay interest and principal during this time.
- Non-traditional HELOC:
This normally has a shorter draw period, which lasts between 1 to 3 years. However, borrowers need to make principal and interest payments during the draw period. This is not the same for traditional HELOCs. Moreover, traditional HELOC’s offer lower interest rates and fees.
What are the pros and cons of using HELOCs?
A home equity line of credit can be a useful financial tool. However, you should understand the pros and cons of using a HELOC before you apply. Here are a few examples:
- Using a HELOC provides flexibility. Borrowers can access the funds as when they need. This is because it’s a revolving line of credit.
- HELOC’s have lower interest rates compared to other traditional loan options. This will reduce the size of your monthly payments.
- HELOC’s can be accessed easily and borrowers have quick access to funds. For example, Alpine Credits will approve your application within 24 hours.
- If you’re unable to pay off your loan, your home may be foreclosed upon. Which may make you lose your home.
- HELOC’s have variable interest rates, so your monthly payments may vary each month. As a result, your monthly payments could increase.
Your application may come with additional fees and costs. Costs like application fees, appraisal fees and annual fees may be included.
What are the new government imposed rules for HELOCs?
The Canadian government has set down tighter restrictions for mortgage offerings due to pandemic effects on the economy. Since line of credit options that involve home equity are also considered mortgages, the restrictions apply to them as well.
Canadians must now be able to pay off their home equity line of credit within 25 years.
This is the foremost change under the new rules. This means that there’s an additional calculation added to lender criteria. This implies that income and credit history are more significant when trying to be approved by the big banks. It is now more difficult to be accepted by them.
Banks must now use their posted 5-year rate for home equity line of credit financing. This is due to the new rules. The outcome is a significantly higher interest rate than what is usually offered on standard HELOC agreements.
Bank lenders are now required to consider debt-service ratios when assessing your application. This includes other loans, credit card history, and the applicant’s overall ability to manage debt. For people with a difficult financial history, it is harder to qualify for a home equity line of credit.
Banks have added their own criteria under the new rules
The government has introduced new regulations for home equity lines of credit. Additionally, banks also have implemented new requirements for potential borrowers.
Some banks are considering the overall credit limit for Home Equity Line of Credit (HELOC) borrowers.
Instead of considering how much the borrower is actually taking, the banks are looking at the total credit limit. This means that every borrower is treated as having borrowed the maximum amount, even if they haven’t. This carries risk. Combined with other financial factors, some borrowers may no longer qualify for a HELOC, even if they were previously eligible.
Mortgage term renewals may involve changes that place a higher financial burden on the borrower. This is true even if the borrower’s ability to make payments has not changed.
How to secure a home equity line of credit under the new rules?
The government and big banks have introduced new requirements for borrowers. This makes it more difficult for them to access their home equity.
Home values have risen sharply in the red-hot real estate market. This has created more equity that can be used for financing.
In this situation, Alpine Credits is the best option for getting a home equity line of credit under the new rules. We have offered home equity financing for our clients for over 50 years. Our policy is that age, income and credit history are not taken into consideration for approval.
Private lenders, like Alpine Credits, have fewer restrictions than banks. This means our financing options are still accessible and easy to qualify for. We strive to offer competitive rates on home equity and mortgage financing. This ensures you get the best deal with Alpine Credits.
Alpine Credits is the best option for home equity line of credit under the new rules
The combination of new requirements from the government and big banks have made it much more difficult for would-be borrowers to tap into their home equity. And it couldn’t be at a worse time in the red-hot real estate market where home values have spiked, opening even more equity to be used in financing.
In this situation, Alpine Credits becomes the best option for getting a home equity line of credit under the new rules. We’ve provided home equity financing for our clients for over 50 years, and maintain our foremost policy that your age, income, or credit history are not factored into your chances of approval.
Private lenders like Alpine Credits aren’t limited by the policies and rules that banks need to follow, so our financing options remain accessible and easy to qualify for. We also strive to offer you the most competitive rates on your home equity and mortgage financing, so you’re always sure you’re getting the best deal with Alpine Credits.
Should you be applying for a HELOC?
The rising cost of housing in Canada has made selling one’s current home to access funds an unattractive option. Especially for emergency or investment purposes. A home equity line of credit is a good option to access the equity in your home. You don’t have to sell it to do so.
A home equity line of credit from Alpine Credits is a great way to finance your business ideas. No matter what you need the funds for, this is a great option. This can include consolidating debt or even investing in new properties by financing down payments.
Now is the ideal time to apply for a HELOC. We guarantee you receive the best possible deal, despite the new regulations for home equity line of credit options in Canada.
Call us today at 1-800-587-2161 to learn more about how we can help you get the financing you need.
Frequently asked questions
The credit limit on a HELOC in Canada can be at a maximum of 65 per cent. The credit available will go up to this amount as you pay down the principal on your mortgage.
The draw period for a HELOC is usually between 3 to 10 years. In this period, borrowers need to only make interest payments for a traditional HELOC.
A home equity loan gives borrowers a lump sum with a fixed interest rate. However, a HELOC offers access to cash as and when you need it. A HELOC has a variable interest rate which fluctuates. Whereas a home equity loan comes at a fixed interest rate, which can be higher.
Traditional lenders require a credit score of at least 680 to qualify. The approval criteria is quite strict as well. At Alpine, we don’t check your credit score or income history. We can offer you a home equity loan with favorable terms and conditions.
You will get approved in less than 24 hours. Also, the funds will be directly deposited in your account within a week.