For years, financial experts have advised home buyers to sock away emergency savings. Most advisers view contingency funds as a prerequisite to getting a mortgage.
You might be surprised then, at how many Canadians mortgage holders don’t have them. We were. (Although we probably shouldn’t have been.)
This week’s Globe column looks at emergency savings funds and their alternatives. It turns out that cash in the bank isn’t the optimal backup plan for everyone.
More via: The perils of home buying without a rainy-day fund
Do the new HELOC rules reduce their usefulness as an emergency fund substitute?
No, plus there is ample unsecured credit available for emergency purchases.
Canadians should be doing a better job at putting away money for emergencies.
But to their ‘credit’ (haha!), they are faced with a barrage of messages about all the things they should be doing for the sake of financial prudence.
It is difficult to pay extra on your mortgage, save for your kids’ RESPs, save for your RRSP, save for emergencies, save for luxuries/treats, and save for saving’s sake.
We advance in life by doing things that are difficult. Yes, it is difficult to save, but it’s also difficult to lose your house.
Out of all the savings goals you wrote, emergency savings in a TFSA should take precedence. If you never run into hard luck then that savings helps pad your retirement fund.
I suspect you’re referring to OSFI’s reduction in the maximum loan-to-value for HELOCs. In many cases you’ll still be able to get a HELOC even if your loan to value is 80%. The caveat is that the revolving credit line portion cannot be more than 65% LTV. (You can also have a mortgage portion in addition to that LOC portion).
So to answer your question, yes, HELOCs will still be useful for this purpose.
Yup and that’s the ideal … but for many Canadians, it isn’t possible and for many others it is possible but difficult. Pretending it isn’t and making sweeping generalizations are great for the internet, but not useful for real life.
Who is “pretending that it isn’t” difficult to save? I never said that.
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