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HELOC vs. Variable-rate Mortgage

HELOC Lenders like National Bank and Canadian Tire have been attracting a lot of business lately thanks to their 4.00% variable HELOC‘s.  Not all borrowers realize, however, that HELOC’s are a slightly different animal than a regular variable-rate mortgage.

For one thing, HELOCs typically don’t have terms associated with them.  They are revolving lines of credit and lenders can usually increase HELOC rates at any time–with little or no notice.  HELOCs do not always have to follow prime rate.

Manulife’s One mortgage is case in point. The Globe says, “for the past nine years, until Oct. 10, the practice with Manulife One was to keep the so-called base rate exactly the same as the prime rate.”  Now the Manulife One is 1/2% above prime.  (You can read all the heated comments surrounding this development on RedFlagDeal’s forums, as well as Manulife’s response on their login page)

Envision’s Redfrog product, another readvancable line of credit, is second recent example.  Existing Redfrog customers have seen their line of credit rate jump from prime to prime + 1.65%!

Lenders can even call in HELOCs if they really want to.  Most HELOC’s are therefore similar to demand loans.

So given all this, would a lender like National Bank or Canadian Tire ever raise rates above prime on existing clients?  Moreover, would they ever call in their HELOCs on good paying customers?

Both are technically possible but most mortgage advisors would tell you that neither are highly probable.  Doing so would not be conducive to repeat business and neither of these two lenders appear to be having severe profitability or funding cost issues.