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The Ultimate Readvanceable Mortgage

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.

Readvancable-Mortgage 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):

  1. A low interest rate on the mortgage portion
      Example:  FirstLine's fixed Matrix or Scotiabank's
      variable STEP (as of February 8, 2008)
  2. Fully automatic readvances with no minimums
      Example:  Several lenders have this feature
  3. A discounted interest rate on the line of credit portion
      Example:  FirstLine's Matrix (conditions apply)
  4. A mortgage/line of credit that's not reported to credit bureaus
      Example:  FirstLine's Matrix or Merix's HELOC
  5. Multiple sub-accounts for the line of credit
      Example:  National Bank's All-in-One or BMO's ReadLine
  6. A fully open "mortgage" portion
      Example:  Scotiabank's STEP or BMO's ReadiLine
  7. Ability to make interest-only payments on both the mortgage and line of credit portions
      Example:  MCAP's FlexStar (which is on hiatus)
  8. 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
  9. Excellent pre-payment privileges (for mortgages that are not fully open)
      Example:  Citizens Bank's Readvanceable
  10. Semi-annual compounding on the line of credit (instead of monthly compounding–for interest savings)
      Example:  FirstLine's Matrix
  11. 100% loan-to-value
      Example:  No one…yet.  MCAP's FlexStar got the closest
      with a 95%
  12. 40-year amortizations
      Example:  Many, but not all, lenders offer 40-year Ams.
  13. A "hold-the-payment" feature on variable "mortgage" portions (so payments stay the same if prime rate rises)
      Example:  RBC's Homeline
  14. 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
  15. Immediate readvancing after payments
      Example:  National Bank's All-in-One and Manulife's One 
  16. No monthly fees
      Example:  Most, but not all, lenders
  17. Ability to lock in variable and LOC portions at fixed rates anytime
      Example:  Canadian Tire's One-and-Only
  18. Skip-a-payment ability
      Example:  National Bank's All-in-One and RBC's Homeline
  19. No legal or appraisal fees
      Example:  Canadian Tire's One-and-Only and Manulife's
  20. Excellent online account statements to track the interest separately in each sub-account (for tax purposes)
      Example:  Many, but not all, have this
  21. 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
  22. Ability to set up online automatic payments from the line of credit (to allow for automated investing for example)
      Example:  RBC's Homeline
  23. Portable to new homes
      Example:  Citizens Bank's Readvanceable or Canadian
      Tire's One-and-Only
  24. A Visa or MasterCard linked to the line of credit
      Example:  Scotiabank's STEP and Envision's Redfrog
  25. 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.