Casey Stengel once said, "Never make predictions, especially about the future." Well, we're going to deviate from that advice and go out on a limb. We're going to suggest that in 3-5 years, readvanceable mortgages will be the most popular type of conventional mortgage in Canada.
They're just too flexible not to be popular.
Readvanceable mortgages give you access to an ever growing pool of cash that you can use for investing (e.g. the Smith Manoeuvre), buying income properties, making home improvements, implementing the cash flow dam, or for unforeseen emergencies.
Sadly though, no lender has designed a perfect readvanceable mortgage thus far. There's some that are very close, but still, too far away.
So we write this in hopes that lenders reading CMT will pick up on what their readvanceable products lack, and build ones that are better, stronger, faster…
What you're about to read is based on feedback from our clients. It's the top 25 things folks ask us for when we talk about readvanceable mortgages. It's far from scientific but it does list the ingredients that could be used to concoct the ultimate readvanceable mortgage.
So without further ado (most popular requests first):
A low interest rate on the mortgage portion Example: FirstLine's fixed Matrix or Scotiabank's variable STEP (as of February 8, 2008)
Fully automatic readvances with no minimums Example: Several lenders have this feature
A discounted interest rate on the line of credit portion Example: FirstLine's Matrix (conditions apply)
A mortgage/line of credit that's not reported to credit bureaus Example: FirstLine's Matrix or Merix's HELOC
Multiple sub-accounts for the line of credit Example: National Bank's All-in-One or BMO's ReadLine
A fully open "mortgage" portion Example: Scotiabank's STEP or BMO's ReadiLine
Ability to make interest-only payments on both the mortgage and line of credit portions Example: MCAP's FlexStar (which is on hiatus)
An all-in-one-type account with daily interest calculation (so deposits temporarily offset your debt to save interest) Example: National Bank's All-in-One, Canadian Tire's One-and-Only, and the Manulife One
Excellent pre-payment privileges (for mortgages that are not fully open) Example: Citizens Bank's Readvanceable
Semi-annual compounding on the line of credit (instead of monthly compounding–for interest savings) Example: FirstLine's Matrix
100% loan-to-value Example: No one…yet. MCAP's FlexStar got the closest with a 95% loan-to-value
40-year amortizations Example: Many, but not all, lenders offer 40-year Ams.
A "hold-the-payment" feature on variable "mortgage" portions (so payments stay the same if prime rate rises) Example: RBC's Homeline
The ability to have multiple mortgage portions with different terms (e.g. one part as a 5-year variable with a 40-year Amortization, one part as a 1-year fixed with a 25 year Am., one part as a 3-year fixed with a 15-year Am., etc.) Example: Merix's HELOC or RBC's Homeline
Immediate readvancing after payments Example: National Bank's All-in-One and Manulife's One
No monthly fees Example: Most, but not all, lenders
Ability to lock in variable and LOC portions at fixed rates anytime Example: Canadian Tire's One-and-Only
Skip-a-payment ability Example: National Bank's All-in-One and RBC's Homeline
No legal or appraisal fees Example: Canadian Tire's One-and-Only and Manulife's One
Excellent online account statements to track the interest separately in each sub-account (for tax purposes) Example: Many, but not all, have this
Ability to capitalize interest on the line of credit. (This is used by investors who want to make LOC interest payments from the LOC itself.) Example: Canadian Tire's One-and-Only
Ability to set up online automatic payments from the line of credit (to allow for automated investing for example) Example: RBC's Homeline
Portable to new homes Example: Citizens Bank's Readvanceable or Canadian Tire's One-and-Only
A Visa or MasterCard linked to the line of credit Example: Scotiabank's STEP and Envision's Redfrog
80%+ offset of rental income (if used for rental properties) Example: Citizens Bank's Readvanceable
Do any readvanceable mortgages currently meet all these criteria? Nope. But we can dream.
Any lender who launched a product with all of these features would likely "own" the market in short order.
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