For those with 20%+ equity, HELOCs are just about the most popular product in the prime mortgage market. Over 2 million Canadians have one.
And now those shopping for a HELOC (home equity line of credit) have another option, this time from non-bank lender CMLS.
CMLS joins Scotiabank, Manulife Bank, B2B Bank, MCAP, Optimum and, soon, TD Canada Trust as national broker lenders with a prime HELOC. (There are also countless provincial lenders with HELOCs, like Meridian Credit Union.)
“A HELOC has been the most-requested product in every broker survey we’ve conducted for the last three years,” says Dan Putnam, Senior Vice President, Head of Residential Mortgages. “So we’re thrilled to have finally ticked that box.”
The CMLS Home Line is a mortgage plus HELOC (two separate charges on title). This is the first iteration of the product, the company says. It plans future upgrades, including an uninsured mortgage portion, a single-charge and full readvanceability.
“We are looking to move quickly and have taken aim at Q2 2022 as an aggressive yet realistic goal for the next evolution [of the product],” said Sam Rizzo, Head of Broker Sales Eastern Canada, Business Development, Residential Mortgages.
The company’s Home Line is backed by a major third-party balance sheet lender (e.g., bank), but the company could not disclose who.
Here’s a quick look at the strengths and weaknesses of the version that just launched.
Unlike big-bank HELOCs, CMLS offers a low insurable rate on the mortgage portion
The minimum HELOC payment is interest-only
Borrowers can roll other debts into the HELOC in order to reduce their debt ratios and help them qualify
CMLS covers the transfer cost of the mortgage portion (if the incoming mortgage is a collateral charge, it slightly reduces broker compensation to offset the extra expense)
The company has some of the most flexible grandfathering rules in the Canadian mortgage market, meaning it’ll grant borrowers an insurable mortgage despite them originally having a $1 million home, 30-year amortization, previous refinance, etc., so long as their mortgage was compliant with federal rules at the time of origination
HELOC funds are available by phone or online (funds can be transferred into the borrower’s bank account by the next business day)
The HELOC is revolving but not readvanceable, meaning the LOC available credit doesn’t increase as you pay down the mortgage portion
There are two separate applications
There are two separate charges (with extra registration and appraisal fees for the HELOC’s second charge; partially reimbursed for status brokers)
The HELOC cannot exceed 50% of the total amount approved (e.g., if you have a $600,000 borrowing limit approved, the LOC portion cannot be more than $300,000; this isn’t a huge con given the average Canadian with a HELOC only uses 28% of their available limit, according to Mortgage Professionals Canada)
The maximum property value is $1 million, unless the mortgage meets grandfathering requirements (e.g., the home was purchased for less than $1 million and/or was compliant with insured rules at the time the mortgage was taken out)
Broker compensation on the HELOC is based on a 60-day average balance (many lenders pay on the approved limit)
Maximum amortization is 25 years on the mortgage portion (given it is insurable), while banks allow up to 30 years
Unlike bank and certain credit union HELOCs, this one is not available on non-owner occupied rentals
Like other lenders, CMLS’s HELOC is qualified using the greater of: (A) the benchmark rate (5.25% currently), or (B) the contract rate (currently prime + 0.50%) plus 200 basis points. At launch it will be available in Alberta, British Columbia and Ontario.
“Every expansion of consumer choice is a benefit,” says veteran broker Ron Butler about the new offering, “particularly when renewal rates on the term portion will always be competitive at a company like CMLS.”
The biggest gripe that many will have with this thing is the lack of readvanceability. Customers love this feature because it helps them build liquidity with every mortgage payment. It’s par for the course at all the big banks.
That said, the CMLS Home Line has its niche. If you don’t care about your borrowing limit going up, you can get a rate that’s as low as 2.69%. Most banks are 2.79% and up. Is that ~$470 of interest savings per $100,000 of mortgage worth the product limitations? For those with high debt ratios and/or no need for future liquidity, it may be.
CMLS has ample competition in the broker space, of course. TD is joining the party in January and First National is reportedly working on a HELOC as well. The company’s stiffest direct competition is probably Manulife, however.
Its Manulife One is currently cheaper rate-wise and offers interest offsetting with an integrated chequing account. But Manulife doesn’t let you roll other debts into the credit line for the purposes of reducing your debt ratios. A HELOC isn’t much help if you can’t qualify for it.