What is a readvanceable mortgage?
A readvanceable mortgage is a mortgage with a HELOC attached to it. But it’s just not any old regular HELOC. Normally when you take out a HELOC, you need to reapply to access additional equity from your home. You need to pay for an appraisal and legal fees again. Not so with a readvanceable mortgage. With a readvanceable mortgage the equity in your home becomes automatically available as you pay down your mortgage. There’s no need to reapply. This saves you time and money. When you make a regular mortgage payment, it’s made up of interest and principal. The portion that goes towards principal automatically increases your HELOC by that much. Let’s say your monthly mortgage payment is $2,000 and of that, $800 goes towards interest and $1,200 goes towards principal. If you had a readvanceable mortgage, your HELOC would automatically increase by $1,200. Pretty cool, right? That’s the beauty of a readvanceable mortgage! With this extra equity you could use it as emergency savings, for investment purposes or to buy another property.
Government rule changes on the way Readvanceable mortgages are a great way to build wealth. Unfortunately, not everyone uses them in a responsible way. Like your credit card, you can use the funds however you like, including in an irresponsible way. This has the government concerned and has prompted them to put some new rules into place. Right now, you can qualify for a readvanceable mortgage with just 20% down. However, in about a year and a half that won’t be the case. The government is going to require that you pay down your mortgage to below 65% of your home’s value for your HELOC to automatically increase. This means waiting longer to be able to access that equity.
The good news is that the changes aren’t coming into effect until the end of 2023. That means you still have plenty of time to set up a readvanceable mortgage and use it in a responsible way as a safety net or to build wealth. With home prices still higher from Covid, there’s never been a better time to reach out to your mortgage professional and discuss setting up one.