Category Archives: Mortgage Products

There’s a flip side to the BMO 2.99% mortgage

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The Bank of Montreal (BMO) made a splash last week with the announcement of its 5-year 2.99% fixed mortgage rate, the lowest in history. This follows months of lenders’ being able to access cheap mortgage funding in the bond market.

If you think 2.99% is too good to be true, you may be on to something. Although borrowers can access 2.99% (aka it’s not a ‘bait and switch’), the mortgage does come with its share of restrictions. The BMO Low-Rate mortgage is what is often referred to as a ‘no frills mortgage’, meaning it comes with a low rate but limited ‘frills’ or add-ons.

A typical mortgage has a rate hold of a few months (60-120 days), generous monthly and lump sum prepayment options (20% is the norm but the monthly allowance can reach 100%), and an amortisation period of up to 30 years.

The BMO Low-Rate 2.99% mortgage falls short of these stipulations.

  1. The maximum amortisation period is 25 years. The actual maximum amortisation period on insured mortgages in Canada is 30 years, five years more than offered on the BMO mortgage rate. BMO is spinning this gap as a positive by focusing on the ability of borrowers to be mortgage-free in 25 years. However, this also means you will qualify for less mortgage and limit your affordability.
  2. You are granted only 10%/10% prepayment privileges. This is less than with a standard mortgage and means you are limited in how fast you can pay off your mortgage should the desire or ability arise.
  3. You cannot skip or double up a payment. An annual ‘skip a payment’ provision is an increasingly common feature with standard mortgages, and provides some flexibility if you are faced with financial hardship at any time over your mortgage term.
  4. You cannot refinance or switch your mortgage to another lender for five years. This provision is perhaps the most restrictive because it is not uncommon for borrowers to break their mortgage early. You would want to be certain you are committed to the full five year term and do not expect your circumstances to change.

The BMO rate of 2.99% is undoubtedly very attractive, but beware the fine print. You should evaluate whether the cost savings of a slightly lower mortgage rate outweighs the cost of limited flexibility.

ING launches its own HELOC product: The re-mortgage?

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On December 10th, ING announced the launch of its newest mortgage product the home equity line of credit more commonly referred to as a HELOC. Up until now, ING has just offered closed variable and fixed mortgage products to its customers, staying away from ancillary products such as open mortgages, cash-back mortgages and the HELOC.

What is a home equity line of credit (HELOC)?

A home equity line of credit is similar to a regular line of credit but comes with a lower interest rate as it is secured by the equity in your home.  The borrower and lender set a maximum amount that the borrower can withdraw. The funds are not advanced up front and the borrower can choose when and up to how much they wish to access (up to the HELOC credit limit of 80% loan-to-value).

Is the HELOC a good fit with ING’s brand?

ING has built its brand on simple, uncomplicated product offerings. They also have positioned themselves as the bank that encourages you to save, the bank that has no fees, and the bank that offers the unmortgage product, helping and encouraging you to get out of debt faster.

ING Direct Mortgage Rates

Some may wonder if the HELOC product matches ING’s unmortgage philosophy as a HELOC can often be a recipe for the never ending mortgage. Since the HELOC is a line of credit, borrowers are only required to make interest payments each month, and are not forced to pay down their balance. According to the Financial Post, critics of the HELOC feel that it can be a dangerous product for “spend-happy clients prone to get in over their heads” because it is “ too easy to borrow and consumers end up living at their limit”. When RateHub.ca spoke with Martin Beaudry, Vice President of Lending at ING, he said the bank spent considerable time thinking about whether or not the HELOC was in the best interest of ING clients. ING came to the conclusion that “not all credit is bad credit and for ING customers that need access to credit, the home equity line of credit is the most affordable way to access credit. For that reason it is important for ING, to offer their customers this option.”

Plus, ING has added two unique features in line with their brand positioning. The fixed payback plan allows you to set up regular fixed payments to promote paying off your debt faster and not get tempted to just make the minimum payment. Additionally, you can also decrease your limit online to help you avoid borrowing more than you really need.

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Collateral Charge Mortgages

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A year ago, TD Canada changed the way it registered its mortgages. All new TD mortgages [since October 18, 2010] are now registered as collateral charges bringing about some noteworthy changes and a bit of controversy.

What are Collateral Charge Mortgages?

A collateral charge mortgage is different than a traditional mortgage. A lender can register a loan (when the home is used as the security) as either a standard mortgage charge or as a collateral charge.

A traditional mortgage is registered, transferred or discharged through the provincial Land Title/Registry Office. The important feature to note is that the ability to transfer your mortgage to another lender is permissible.

Collateral charges are not registered with a Land Title Office, but under the Personal Property Security Act (PPSA). Once registered under the PPSA, a collateral charge can only be registered or discharged, a transfer of any type is not possible.

Furthermore, it is a loan that allows a borrower to tap into their home equity if the property rises in value. Mortgages registered as collateral charges are more common for lines of credit such as HELOCs. It is also unusual that a major Canadian bank such as TD would choose to register all their mortgages as such.

How does this impact you?

First let’s get into the advantages of collateral charge mortgages. The primary benefit to you is that accessing your home equity becomes much, much easier. A lawyer’s presence is no longer necessary. TD registers your mortgage for approximately 125% of the value at closing meaning if your house increases in value, you can access that equity. They can do this because the charge does not have to be re-registered in the event that you need to borrow. This allows you to take out equity free of charge assuming the value of their homes rises.

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Cash Back Incentives through True North Mortgage

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True North Mortgage

Ratehub is a free resource for consumers who want to compare mortgage rates in Canada in order to find the best mortgage product suited for their needs. We are very selective on who we choose to partner with. Our partners must be able offer top quality service in addition to valuable mortgage knowledge. True North Mortgage (TNM) is one such partner and they have an incredible resume. This past April, they won the Mortgage Brokerage of the Year award.*

They have recently launched a new campaign for their customers called, The Discount Real Estate Commission Program. True North Mortgage has partnered with select top realtors across Canada, who have agreed to cut their commissions and give money back to the customer upon their possession date or sale date. The cash back is based on a set percentage, which can add up to thousands of dollars. A mortgage broker/real estate agent partnership like this is quite unique because typically the home buyer doesn’t pay their real estate agent when purchasing a home; this commission is paid for by the sellers, which means consumers buying property aren’t likely to see a rebate or discount on a new purchase. With this preferred realtor program, you, the buyer, shall receive a cash incentive if you choose to purchase property with them.

The cash rebate is available to both buyers or sellers, plus if you buy and sell with them, you’re eligible for a double cash incentive!

Breakdown

The industry standard for a realtor commission is typically 7% on the first $100,000 and 3% on the remainder. The preferred TNM realtors have agreed to surrender a portion of this commission to the buyer/seller.

If you are buying or selling… Cash Back Percentage**
Less than $300,000 10%
More than $300,000 15%

** of the Realtor’s commission

Example:

Mortgage Amount Cash Back Rebate
$250,000 $575
$500,000 $1425

If you were to sell a $250,000 home AND buy a $500,000 home with the Discount Real Estate Commission Program, you would pocket $2,000 ($575 + $1425).

To be eligible, you must be a True North Mortgage client.

True North Mortgage continues to stay competitive with this new campaign, in addition to offering some of the lowest mortgage rates on the market today. Click here to see current True North Mortgage Rates. If you wish to be referred to one of TNM’s realtors, please contact Heather at 1-877-884-8245.

Visit them online at www.truenorthmortgage.ca 

Twitter: @TrueNorthMtg 

Facebook: True North Mortgage Fan Page

Sources

*Canadian Mortgage Awards: http://www.mortgagebrokernews.ca/site-search/winners-announced-at-2011-canadian-mortgage-awards/106638?

Zero down mortgages

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Here at RateHub, we have a number of first-time home buyers asking about zero down mortgages. So we decided to do a little bit of research and get some information on the topic. We also spoke to one of our mortgage brokers, Nelson Sousa of Axiom Mortgage Solutions, who has successfully closed several zero down mortgages so far this year. Here’s a summary of everything we learnt, in question and answer format.

How does a zero down mortgage work?

As you may know, the minimum down payment in Canada is 5%. However, one way for lenders to work around this is by getting you a cash back mortgage.

A cash back mortgage provides you with a percentage of your mortgage in upfront funds, which is possible because your house acts as collateral. However, the drawback is that your mortgage rate is higher (so interest costs over the term will be larger than the amount you receive in cash back).

Essentially, you can qualify for a 5-year cash back mortgage at 5%, where the 5% cash back is considered to be your down payment. However, on paper, the mortgage is structured as though you put in 5% of your own funds. Of course, remember that you will have to pay CMHC insurance associated with this mortgage (you incur this cost for down payments less than 20% in Canada.)

Potentially, with a 10 year term, you may be able to procure an 8% cash back mortgage rate. So in theory, you could have 103% financing on your mortgage if you put in a 5% down payment. However, it is important to do some cost-benefit analysis and determine whether it is worth taking on.

Who is most likely to qualify for a zero down payment mortgage?

Because lenders are taking on higher risk with such a mortgage, they are looking for clients with absolutely no credit violations in the last year. Additionally, you should have at least two trade lines such as credit cards or car loans with perfect two year histories.

Your credit history is the determining factor in acquiring a zero down mortgage, also known as an interest only home loan. Following that, the lender will consider your education as well as job tenure. They want to see that you’ve been steadily employed as opposed to switching jobs every couple of months.

When does a zero down mortgage make sense?

Because of the higher interest rates, the funds you receive from a cash back mortgage do not compensate for the amount you will pay in interest over the length of the term. That being said, it is a good option for people who do not have enough funds to cover the down payment at that time and who want to take advantage of a good buyers market or low mortgage rates.  If you’re sure of a property and don’t want to let the opportunity slip by, this type of mortgage is something to consider.

Another scenario where this product makes sense is if you want a little extra cash for closing costs or, say, to purchase furniture for your new home.

You could also consider putting in a small down payment of your own, perhaps 1% or 2% of the asking price and making up the difference with the funds from a cash back mortgage.

How do I get a zero down mortgage?

Get in touch with a mortgage broker in Canada who can help you navigate this tricky mortgage product. A mortgage broker must have good relationships with the banks and lenders that they work with. Because of the risk involved, it can be difficult to procure 100% financing for a property, but it’s not impossible.

When will I get my cash back?

You can get your cash back funds within a few days of closing, if not on the actual day, depending on how quickly your lawyer can process the paperwork from the lender.

To conclude, there are a few reasons to pursue a mortgage with no down payment. However, to qualify you need to have excellent credit history and demonstrate that you’re a solid client to take on. Lenders who take on these zero down payments mortgages are big lending institutions, as opposed to a trust company or financial group. Keep in mind that with such a mortgage, you will be making up for the added risk with a higher interest rate.  So, your gain initially is recouped in interest payments by the lender later on.

The Manulife One Bank Account

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The Manulife One Bank Account is a popular financial product with a great marketing campaign behind it. Let’s take a closer look at some of the benefits as well as some of the disadvantages of this product.

There are three features that separate the Manulife 1 from a typical HELOC.

1)      Interest is calculated on the HELOC less any positive balances from deposits.

2)      There is a monthly feeof approximately $15 or $180 / year.

3)      Manulife mortgage rates are generally not competitive compared to the best available on the market, and Manulife has in the past changed the spread on its HELOC rate without notice.

Introductory promotional video on YouTube.

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The Manulife One Account is essentially a Home Equity Line of Credit (HELOC) that links together your HELOC with your savings and deposits. This account combines your transactions with a daily interest calculation, where deposits temporarily offset your debt.

HELOCs are reported to credit bureaus while regular mortgages are not. So a HELOC could help or hurt your credit score depending on how careful you are with your payments.

Calculate the HELOC portion of Manulife One

A HELOC allows you to borrow up to 80% of the equity built up in your property, minus what you owe on your mortgage. As the mortgage is paid down, the HELOC increases without having to re-apply to access the equity in the property. And you only pay interest on the portion of the HELOC that is being used.

For example:

- You bought a house for $400,000

- You took out a mortgage for $380,000 with a 5-year fixed mortgage rate of 4%.

- After 5 years, the market price of your house increased to $500,000

- Your current outstanding mortgage balance is $300,000

- 80% of $500,000 = $400,000

- Your available line of credit is $400,000 – $300,000 = $100,000

So, if your HELOC rate is 5%, you will continue to make fixed mortgage payments at 4% interest, but you will have access to $100,000 of additional funds at 5%. An All-in-One rate is a variable interest rate, however, so it varies with the prime lending rate.

The minimum HELOC payment is only interest (as opposed to mortgage payments consisting of principal and interest).

Mortgage HELOC Transaction account
Outstanding mortgage balance Discretionary funds limit Chequing or savings account, or GICs
$300,000 (5-year fixed rate at 4%) $100,000 (Variable rate at 5%) $10,000

The $10,000 positive deposit will be used to offset the $100,000 HELOC in the daily interest calculation, but you are free to withdraw this money at any time.

Manulife 1 Benefits

- Use the account to pay off other higher-charged debt such as credit cards or loans, and consolidate your debt at one lower interest rate.

- Each deposit (including pay cheques and bonuses) pays down your debt immediately, reducing your interest costs.

- Manulife 1 works as a chequing account, giving you easy access to your money.

- Receive a single, comprehensive banking statement.

- You can distribute risk by locking in a portion of your HELOC at a Manulife fixed mortgage rate.

Manulife 1 Disadvantages

- HELOCs create a temptation to spend, so ensure that you are disciplined enough to not max out your line of credit on discretionary spending.

- There is no guaranteed interest rate or terms with a HELOC.Regular variable rate mortgages, on the other hand, almost always have a set relationship to the prime rate. The relationship between a HELOC and the prime rate can in theory change at your lender’s discretion.

- HELOCS are in general at least 1% higher than regular variable mortgage rates. So, depending on how certain you are as to the amount you need to borrow, a regular refinance may be less expensive.

- There is a minimum monthly fee for the Manulife One account.

- Deposits such as paycheques only offset the HELOC portion of your total debt (or other debt such as credit cards) but not the first position mortgage.

- Manulife 1 does not offer the most competitive mortgage rates. So, for the Manulife 1 to be beneficial, the interest savings from deposits offsetting debt need to be greater than the incremental mortgage rate premium.

Off the Record

Manulife’s uncompetitive mortgage rates are one of its major drawbacks. The assumption is that you are required to hold your first mortgage with Manulife in order to access a Manulife One. However, this is not necessarily the case.

Speaking with a few reputable Manulife representatives, off the record, it was revealed that it is possible to have a Manulife One account and hold your first mortgage with another lender, albeit with some limitations. Manulife approaches this on a case-by-case basis, and, thus, does not advertise the possibility. Manulife tries to get borrowers with other lenders to switch once their terms are up, and will add a 1% premium to the Manulife One rate if they do not.

Manulife One Bank Account

Additional notes on the Manulife 1

There are a couple ways to think about the Manulife One Account and if it has the potential to benefit you.

1. In order for deposits to offset debt, you must have a negative HELOC balance. And further, it must be  substantial for any real interest savings to be realized.

2. If you are making deposits that will be mostly withdrawn throughout the month as expenses arise and bills are paid, you should realize you are only saving interest on daily interest calculations at an annual rate. This, in turn, does not equate to much.

Further to these points, compared to the only other ‘all-in-one’ product on the market, the National Bank All-in-One, Manulife has less competitive mortgage rates. So, if you hold your first mortgage with Manulife, you will pay more interest and if you want to lock in a portion of your Manulife One at a fixed rate, it will also higher.

On the whole, you must decide if an “All-in-One” product can save you money, and at that, if the Manulife 1 is your best option.

BMO ReadiLine Home Equity Line of Credit (HELOC)

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BMO imageBMO’s ReadiLine is a Home Equity Line of Credit which allows you to take out a loan of up to 80% of the equity in your property.

A HELOC allows you the flexibility of borrowing money to use however you please, be it a vacation, for the purchase of another property or a renovation. The limit on your credit is determined by the amount of equity in your home. So, as you pay down the principal on your mortgage, your limit increases.

Home Equity Lines of Credit are commonly reported to credit bureaus so they can either help or hurt your credit score. You can ensure the former by staying up-to-date with your monthly payments.

Calculating a HELOC

With a Home Equity Line of Credit , you have access of up to 80% of your home equity, less your remaining mortgage balance. Here’s an example to further clarify BMO HELOCs.

Let`s say you invest in a property valued at $500,000 and take out a mortgage of $475,000. After a few years, the value of your house appreciates to $600,000. Your balance on your mortgage is currently $400,000.

80% of $600,000 = $480,000

This means that your available line of credit is $480,000 – $400,000 = $80,000

The $80,000 of funds will be available to you to take out at any time through a Home Equity Line of Credit based on current HELOC rates. However, you will still have to make monthly fixed payments on your outstanding mortgage balance of $400,000.

Summary of key features

Bank Product Minimum amount Maximum amount Sub-divide lines Option to convert to fixed Revolving balance Monthly Fee Second Position
BMO Readiline None 80% market value No No Yes No No

Advantages of BMO ReadiLine HELOC

There are definite advantages to a BMO Home Equity Line of Credit.

-          You have access to more money as you pay down your mortgage.

-          You are only charged interest on the amount that you use, instead of the whole credit limit.

-          Your minimum payment is only interest.

-          No monthly charge on your account.

Disadvantages of BMO ReadiLine HELOC

On the other hand, you should educate yourself on the possible disadvantages of a BMO HELOC.

-          Since funds from Home Equity Lines of Credit are so accessible, you should exercise discipline in terms of your finances.

-          In theory, the relationship between the prime rate and a HELOC rate can be adjusted at your lender’s discretion. There is no fixed relationship between HELOCs and the prime lending rate, while most regular variable mortgage rates do.

-          Based on your needs, a refinance may be a more suitable and cheaper option when compared to HELOC.  A HELOC provides flexibility in accessing funds. However, a refinance could make more sense if you need a definite cash amount instantly.

Based on your borrowing needs, a Home Equity Line of Credit may a good option for you. In any case, ensure that you have covered all your bases and done all the research necessary to find the best mortgage product for yourself. Current BMO mortgage rates are available here at Ratehub.ca.

TD Cash Back Mortgages

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TD cash back mortgages

A cash back mortgage is a loan that once the agreement is confirmed, the borrower receives a cash advance.  The cash is typically calculated as a percentage of the mortgage, but some lenders may choose to give a fixed amount based on a mortgage amount matrix.  Generally, this type of loan has higher interest rates due to the cash advance.

Benefits of the TD Cash Back mortgage

The immediate availability of money can be used in various ways depending on the needs of the borrower.  The proceeds of the cash back mortgage may be used to pay off debt, go towards home improvement, or fund a college education.  First-time home buyers are frequently attracted to cash back mortgages as a means to pay their closing costs or furnish their property, or in some cases, the down payment.

Drawbacks of the TD Cash Back mortgage

Financial institutions need a way to recoup the money they advance to consumers and so it will always be reflected in the interest rate.  Cash back mortgages have higher rates than non cash back mortgages, usually close to bank posted rates.  Also, cash back mortgages have stricter conditions that need to be met.

Overall, cash back mortgages may be suitable for your situation, but it’s important to evaluate your circumstance to determine if the cash advance is worth the interest rate hike.

REVIEW

TD CASH BACK MORTGAGE CASH BACK AMOUNT* PREPAYMENT
4% $4,000 15% Lump sum100% of monthly mortgage payment
5% $5,000

* based on a $100,000 mortgage

CONDITIONS

4% cash back

The term must be on a 5-year fixed rate residential mortgage

There is no maximum cash back amount.

5% cash back

The term may be on a 5, 6, 7 or 10 year fixed rate residential mortgage

The maximum cash back amount: $25,000

Prepayment Penalty

The pre-payment penalty, also called the cash back penalty, will be the greater of 3 months interest OR the Interest Rate Differential (IRD). In addition, there is a compensation cost which requires the borrower to return a portion of the cash advance they received upfront.  This amount is calculated by a TD formula.

Summary

TD cash back mortgages

At first glance, the 4% TD cash back mortgage may seem like a better option versus the 5% offer, due to the limitless cash advance, but the $25,000 cap on the latter reaches its peak at a mortgage principal of $500,000.  To receive the same $25,000 amount with the 4% cash back offer, you would need a mortgage amount of $625,000.  With a mortgage amount that high in order to hit the cash back ceiling on the 5% offer, it’s not as limiting as it appears, considering the average Canadian mortgage is $150,000 1.

That being said, the 5% cash back offer is also available on four separate fixed terms (5-7 year and 10 year), whereas the 4% is restricted to only the 5-year term.

For those looking to pay off their mortgage faster, TD offers up to 15% annual lump sum provision and the ability to double your monthly payment.  The TD cash back mortgage also offers four payment options: Weekly, bi-weekly, semi-monthly, and monthly.

The current posted TD 5-year fixed rate is 4.14%, but you might be able to get a better rate by either negotiating with a TD mortgage specialist or by talking to a mortgage broker. Currently, the lowest 5-year cash back rate on RateHub, is 4.94%

1 According to the CAAMP 2011 survey

Green mortgages cut into your savings

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Green Dollar SignThe environmental movement in Canada is starting to accelerate and both homebuyers and homeowners are climbing on board the green express. According to the EnerQuality Green Building survey in October 2009, 40% of Ontario homebuyers were willing to pay an additional $10,000 for a ‘green home’, compared to only 22% in 2008 [1]. And the numbers are only growing. To meet this rising demand for environmental action within the housing sector, some Canadian banks have implemented “green mortgage” initiatives.

As long as your home has features that limit energy consumption or make the process more efficient, it may be able to qualify as “green”. This initiative is not on par with LEED certified buildings, but it’s definitely a start.

The TD Canada Trust Green Mortgage

With TD Canada Trust’s Green Mortgage, you are provided with a discounted rate of 1% lower than the posted 5-year fixed mortgage rate. In addition, when you buy CSA®approved solar panels or make ENERGY STAR® certified purchases, TD offers a cash rebate of up to 1% on the cost of a mortgage, or on the fixed portion of your Home Equity Line of Credit (HELOC). They also make a $100 donation to TD Friends of the Environment Foundation. [2]

So, does this translate into savings?  First, TD mortgage rates may not be the most competitive on the market. Even with a 1% discount, this rate may still be significantly higher than one you could procure through a mortgage broker. Second, the cash rebate pertains to very specific purchases, so unless you really want to invest in these exact environmental upgrades, it may not make financial sense to do it simply for the green mortgage.

Cash rebate on the average mortgage in Canada [3]: $1500 (1% of a $150,000 mortgage)

BMO Eco Smart Mortgage

Recently, in March of 2011, the Bank of Montreal (BMO) also started offering green mortgages. The BMO Eco Smart Mortgage is a competitive mortgage rate, it is 3.89% on a 5-year fixed mortgage rate, for an energy-efficient home. Your home will need to be appraised by BMO to see if it qualifies. Possible qualifications include solar, tankless or Energy Star qualified hot water systems; high-quality attic insulation; Energy Star windows and doors or high- efficiency heating and cooling systems. [4]

The name of the green game is “energy-efficiency” and anything that can be done to improve the energy consumption of your home could qualify you for a green mortgage.

So, what are the real savings to be gained from this product? A rate of 3.89% is good, but today, you can get 5-year fixed mortgage rates as low as 3.44%. Using our RateHub mortgage payment calculator on both these rates, the savings in just interest costs over a 5-year term would amount to approximately $3,209.

RBC Royal Bank Energy Saver Mortgage

With the RBC Energy Saver Mortgage, you can save up to $300 in rebates on a home-energy-related improvement [5]. But, does $300 match up to the savings you could have accumulated with a lower mortgage rate? Probably not.

Canadian Mortgage and Housing Corporation (CMHC)

CMHC provides buyers with a discount of 10.0% from the mortgage insurance premium for qualified purchases [5]. This may be worth looking into if you are considering a down payment of less than 20%.

Cost vs Benefit

If you are thinking about getting your home renovated to meet the requirements of a green mortgage, ensure that you confirm with your lender that the upgrades will indeed qualify your home.

The best part about an energy-efficient home is that it will significantly reduce your utility bills. In a Leger Marketing survey done for BMO, 51 % of those surveyed mentioned utility bills as the main financial shocker of homeownership [4].  By investing in an energy saving refrigerator or washing machine, for example, you can significantly reduce your household costs.

Homebuyers looking for the best mortgage rates in Canada may not be enticed by a green mortgage as it offers few benefits for purchasing a green home.  However, if you are interested in ‘greening’ your home, then check out your options, but keep in mind that you may be able to save more with a regular mortgage. Do some research and find out if a green mortgage will actually benefit you.

Go green without a green mortgage

Even though we’re all for the green movement, we’re not totally convinced by the green mortgages out there at the moment. We respect the effort to promote environmental homes but in most cases, the mortgage savings are nonexistent.

You can still invest in energy-efficient upgrades which will benefit the environment and cut down on your utility bills (the monthly savings will accumulate). You can also save on your mortgage payments by choosing a low home mortgage rate. Don’t be fooled by just the concept of an environmental mortgage.

All that glitters isn’t green.

Pays to be Green

Sources

[1] http://www.mortgagebrokernews.ca/industry-talk/wanted-green-mortgages/38966

[2] http://www.tdcanadatrust.com/greenhome/index.jsp

[3] According to the CAAMP 2011 survey

[4] http://money.canoe.ca/money/mymoney/canada/archives/2011/03/20110315-100812.html

[5] http://recommendedbroker.ca/blog/?tag=td-canada-trust-green-mortgage

TD Canada Trust Home Equity Line of Credit (HELOC)

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TD imageThe TD Bank / TD Canada Trust Home Equity Line of Credit gives you the option of taking out a loan on up to 80% of the equity in your home.

A HELOC provides the flexibility of borrowing money for anything you wish, whether it is for renovating, a college fund or a vacation. Your credit limit is based on the amount of equity you have in your property. As you pay off your mortgage, your credit limit increases.

HELOCs are commonly reported to credit bureaus so depending on how you keep up with your monthly payments, a Home Equity Line of Credit can either positively or negatively impact your credit score. You can ensure the former by staying on top of your monthly payments and never skipping the due date.

Calculating a HELOC

The TD Home Equity Line of Credit provides you with access to up to 80% of your home equity minus your outstanding mortgage balance. To further clarify the TD HELOCs, here’s an example.

-Let’s say you purchase a property valued at $500,000 and you take out a mortgage of $475,000

-In a couple of years, the value of your house appreciates to $600,000

-The balance on your mortgage is $400,000

- 80% of $600,000 = $480,000

- So, your available line of credit is $480,000 – $400,000 = $80,000

You can take out the $80,000 of funds at any time through a Home Equity Line of Credit at the existing HELOC rates. Nonetheless, you still have to make monthly payments on the $400,000 mortgage balance.

Summary of key features

Bank Product Minimum amount Maximum amount Sub-divide lines Option to convert to fixed Revolving balance Monthly Fee Second Position
TD Bank HELOC $10,000 80% of market value or purchase price of home (whichever is lower) 20 Yes Yes No Yes

Advantages of the TD Canada Trust HELOC

There are several advantages to a TD bank Home Equity Line of Credit.

-          As you pay off your mortgage, you gain access to more funds.

-          You are only charged interest on the amount that you actually borrow, not the whole credit limit.

-          The minimum payment is simply interest.

-          There is no monthly charge on your HELOC account.

Disadvantages of TD Canada Trust HELOC

In contrast, there are some possible disadvantages of a HELOC mortgage.

-          Funds from Home Equity Lines of Credit are easily accessible, so you need to be able to exercise discipline in terms of your spending.

-          There is no defined relationship between HELOCs and the prime lending rate, whereas regular variable mortgage rates usually do. As a result, the HELOC rate can be changed at your lender’s discretion.

-          You may want to consider a refinance, depending on your financial situation and needs. It may be a more suitable and cheaper option when compared to a Home Equity Line of Credit. A refinance could make more sense if you need the money immediately and you know the specific amount of funds that you need.

Depending on your borrowing needs, a HELOC may a good option. Ensure that you do all the research to find the best mortgage product for you. Current TD bank mortgage rates are available here at Ratehub.ca.