Home equity line of credit: New rules in Canada
New mortgage rules have been put into place that make it more difficult for Canadians to access their home equity through traditional avenues. These rules also come with higher interest rates, and together, qualifying for home equity line of credit options is harder than ever before.
Let’s break down why these rules pose a problem for Canadians looking to leverage their home equity to acquire financing.
New government imposed rules for home equity line of credit offerings
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.
The foremost change is that Canadians now must be able to pay off their home equity line of credit within 25 years under the new rules. This means that there’s an additional calculation added to lender criteria. It also means income and credit history now play a bigger role in determining whether you can qualify with the big banks.
On top of this, banks must now use their posted 5-year rate for home equity line of credit financing under the new rules. The outcome is a significantly higher interest rate than what is usually offered on standard HELOC agreements.
Finally, bank lenders are also now required to factor in debt-service ratios into their eligibility assessment, considering other loans, credit card history, and the applicant’s overall ability to manage debt. For anyone with a rocky financial background, this raises the bar on qualifying for a home equity line of credit that much higher.
Banks have added their own criteria under the new rules
It isn’t just the government that’s added new rules for home equity line of credit offerings; even banks are adding new requirements for any hopeful borrowers.
Some banks, for example, are considering the overall credit limit instead of how much the borrower is actually taking into account against their HELOC. In other words, every borrower is treated as having borrowed the maximum amount, even if they haven’t actually done so. This obviously comes with inherent risk, which means that combined with other financial factors, some borrowers can no longer qualify for a HELOC, even if they might have been able to before.
On a side note, this also means that mortgage term renewals may also have changes that place a higher financial burden on the borrower, despite there being no changes to their ability to make payments.
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?
With the price of housing rising across Canada, selling your current home to access funds is a less attractive option, especially for emergency and investment reasons. Instead, a home equity line of credit is a fantastic way to tap into the inherent equity locked away in your home without having to sell it outright.
No matter what you need the funds for, a home equity line of credit with Alpine Credits is a fantastic way to fund your entrepreneurial ventures. This can include consolidating debt or even investing in new properties by financing down payments. Now is a perfect time to be applying for a HELOC, and we make sure that you get the best deal possible even with the new rules 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.