TD and Royal bank just made a change to borrowers who have a Home Equity Line of Credit or Heloc.   Stay tuned as I will discuss all the details.

Home equity lines of credits or HELOCS are line of credits secured against your home.  These lines of credits were promoted by banks to one stimulate more borrowing and two to secure your mortgage business.  When you have a HELOC it costs about $300 to discharge it.

On Nov 5th,  TD and Royal bank have decided to stress test your credit limit on your HELOC when you are planning to get a new mortgage on an investment property.   This even applies if you have a zero balance on your existing HELOC.  The reason they are doing this is because the banks have no idea if or when you will advance the entire balance of of your HELOC. 

How will this affect the Vancouver Real estate market?  

Since its introduction in Canada.  In year 2000 the outstanding balance was at 35 billion, in 2016 that balance has grown to about 211 billion.  Many buyers and real estate investors use these HELOCS as downpayment to secure a mortgage and used HELOC money as deposits for presales.  If anybody plans on securing a new mortgage who already has a HELOC in place good luck.  And remember the stress test has already cut your purchase power by 20% since its implementation this year.  

Is there a work around?  Yes of course.  This new policy change is only happening with TD and Royal Bank. But I have a feeling the other big banks will follow soon.   So if you intend to get a new mortgage I would suggest

  1. Don’t apply for a new mortgage with TD or Royal Bank.
  2. IF you have a HELOC that you are not using, close that account. 
  3. If you have a HELOC balance consider closing the account and refinance your mortgage. 

Question of the day, do you think this HELOC Policy Change will affect the real estate market?  Please leave it in the comments below. I will try my best to personally answer all comments myself.     

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