A readvanceable mortgage combines multiple mortgages, home equity lines of credit (HELOC), and other secured credit facilities under one registered collateral charge mortgage. Readvanceable mortgages offer flexibility for financial products, allowing you to re-borrow funds as you pay your mortgage principal. 

Readvancable mortgages are an excellent option for homeowners looking to access their home equity without additional applications or approvals. It’s an effective way to manage finances and customize your mortgage strategy.

---

Key Takeaways

• A readvanceable mortgage allows you to re-borrow the principal as it is paid down.
• A mortgage solution that may be paired with a revolving line of credit, offering financial flexibility for future needs.
• It is an excellent tool for consolidating debt, funding investments, or handling unexpected expenses.

---

What is a Readvanceable Mortgage?

A readvanceable mortgage is an advanced home financing option that combines traditional term loan mortgages with one or more home equity lines of credit (HELOC). It allows you to borrow money as you pay down the principal on your mortgage, giving you more financial flexibility. As you make your monthly mortgage payments, the available credit in your HELOC increases, which means you can borrow against the value of your home without reapplying. 

A readvanceable mortgage, also known as an on-demand loan, is usually set up as a collateral charge. It allows the borrower to readvance any equity built up as they repay their original mortgage balance.

How Does a Readvanceable Mortgage Work?

A readvanceable mortgage is structured with multiple components:

• One or more mortgage components function like traditional term loans with an end (maturity) date while having principal and interest scheduled repayments.
• One or more HELOC components allow the mortgage holder to borrow as a secured line of credit.
• There is an option to set up multiple other credit facilities, such as secured credit cards, car loans, personal term loans, or overdraft facilities, all at preferred interest rates, pricing, and fees than if they were unsecured.

As you make mortgage payments, the principal balance decreases, and this amount becomes available for re-borrowing. Typically, borrowers and lenders will set up the available room as it automatically increases to one of the HELOCs within the readvanceable (collateral charge) mortgage.

Example 1: If your monthly mortgage payment is $1,000, where $700 is applied to the principal and $300 to interest, your HELOC credit limit will rise by $700, allowing you to access additional funds immediately. However, the total HELOC limits on your readvanceable mortgage are capped at 65% of the property’s value that is secured as collateral with your lender.

Example 2: If you qualify for a $300,000 readvanceable mortgage, you can divide it into two parts of $150,000 each, creating a hybrid mortgage with a fixed and variable rate. This setup allows for a lesser penalty if you break the mortgages and lets you take advantage of decreasing rates on the variable-rate mortgage (VRM) or decreasing payments on an adjustable-rate mortgage (ARM) part while keeping stability and predictability on the fixed-rate mortgage.

Eligibility for a Readvanceable Mortgage

To be eligible for a readvanceable mortgage, you typically require a solid credit score, a steady income, and a minimum of 20% equity in your home. Lenders set a maximum on the total credit available through your readvanceable mortgage, which is capped at 80% of your property’s value. This maximum is referred to as the global limit on your readvanceable mortgage.

Key Benefits of a Readvanceable Mortgage

Financial Flexibility: One of the most significant advantages of a readvanceable mortgage is the ability to readvance the balance you’ve paid toward your principal, allowing flexibility to access cash for emergencies, home renovations, or investments.

Lower Interest Rates: Since your home secures the HELOC, the interest rates are typically lower than those on unsecured or personal lines of credit or credit cards.

Quick Access to Home Equity: With a readvanceable mortgage, you don’t have to apply for a new loan whenever you need funds. Your home equity automatically becomes available through the HELOC as you make payments on your mortgage. It can also be set up as a new term loan, such as to purchase a car or for another considerable expense.

Differences Between a Readvanceable Mortgage and a HELOC

A readvanceable mortgage and a HELOC let you borrow against your home’s equity, but they function differently. With a readvanceable mortgage, your HELOC credit limit automatically increases as you pay down the principal on your mortgage. 

In contrast, a standard HELOC usually needs a separate application to raise the limit and is often registered secondary to an existing mortgage against the same property. The HELOC’s variable interest rate will fluctuate with your lender’s prime rate in Canada.

Is a Readvanceable Mortgage Right for You?

A readvanceable mortgage can provide flexibility and easy access to funds, but it may not be the best choice for everyone. This type of mortgage may be ideal if you have at least 20% equity in your home, as you can only utilize the equity that exceeds this threshold. Additionally, if you need funds for significant expenses such as home improvements, investments, or unexpected emergencies, a readvanceable mortgage can be a helpful temporary tool as you pay for expenses. You must be responsible and possess strong financial discipline, as managing revolving credit is crucial to avoid potential pitfalls and convert to a term loan once you’ve accomplished your goal.

On the other hand, if your home has less than 20% equity, you might still qualify, but the benefits of a high-ratio readvanceable mortgage will be limited until you pay down more of your mortgage. Furthermore, the revolving credit feature can be a double-edged sword; without proper financial discipline, it could lead to overspending. Lastly, if there is a risk that your home’s value could decline, you might end up in a situation where you owe more than your home is worth, creating financial strain.

Popular Readvanceable Mortgage Lenders in Canada

Here are some of the popular readvanceable mortgage products available in Canada:

• TD Home Equity FlexLine: Offers a combination of a regular mortgage and a revolving HELOC with no prepayment charges.
• RBC Homeline Plan combines a mortgage with a line of credit, accessible through multiple banking channels.
• Scotiabank Scotia Total Equity Plan (STEP) combines multiple products under one plan, including up to three mortgages, two globally accessible secured Visa lines of credit, term loans, secured credit cards, and secured overdraft protection (ODP).
• CIBC Home Power Plan automatically rebalances your HELOC limit with each mortgage payment.
• BMO Homeowner ReadiLine provides easy access to your HELOC, set up as a globally accessible secured Mastercard at any ABM or ATM.
• Desjardins Versatile Line of Credit (VLOC): Available in Ontario and Quebec, this credit union product allows borrowing up to 80% of your home’s value through unlimited secured products, many without minimum limits.
• National Bank All-In-One: Offers flexible repayment with multiple credit facility options.
• Meridian Flex Line Mortgage: Available in Ontario, this credit union product allows borrowing up to 80% of your home’s value through the HELOC.
• Manulife One is a banking solution most advantageous for self-employed Canadians that combines your mortgage with bank accounts, savings, income, and debts. It allows for easy adjustment of mortgage payments, access to home equity, and reduced interest expenses to help pay off debt faster.
• MCAP Fusion: A readvanceable mortgage that allows a mortgage term loan to be paired with a HELOC.
• CMLS Home Line is a mortgage that offers a versatile borrowing solution that enables borrowers to set up a mortgage term loan paired with a HELOC.

Productive Ways to Use a Readvanceable Mortgage

Under a readvanceable mortgage, your HELOC can be used in various ways. Some productive ways include:

Investing in rental properties or other assets, using your home’s equity to build additional wealth.

Home improvements or renovations to increase your property’s value.

Debt consolidation helps you roll high-interest debt into a low-interest HELOC or consolidate it into a lower-interest term loan.

Using the Smith Manoeuvre With a Readvanceable Mortgage

The Smith Manoeuvre is a Canadian tax strategy that enables you to convert your readvanceable mortgage into an investment loan. If you use the borrowed funds for investments, the interest on this loan may be tax-deductible. It is essential to speak with a financial adviser or tax expert before implementing this strategy to grasp the tax effects and possible risks involved.

Potential Risks of a Readvanceable Mortgage

While readvanceable mortgages provide flexibility, they come with potential risks:

Higher Interest Rates: Since the HELOC portion often comes with a variable rate, your interest payments could increase if rates go up.

Overspending: The ability to re-borrow funds can tempt some homeowners into accumulating more debt than they can handle.

Captivity Costs: Readvaneable mortgages often carry higher de-registration and discharge fees, forcing borrowers to stay captive with their lenders. Also, tiered term loan mortgage maturities set up to fully benefit from a readvanceable loan mean that all components under your collateral charge may not be up for renewal simultaneously, adding additional penalties when discharging the readvanceable loan.

How to Maximize the Benefits of a Readvanceable Mortgage

A clear strategy is essential to maximize the benefits of a readvanceable mortgage:

• Only borrow what you need: Avoid taking more from your HELOC than necessary to prevent overspending.
• Invest wisely: If using the HELOC for investments, make sure they offer solid returns to offset the risks with interest-carrying costs.
• Pay down high-interest debt first: Use the HELOC or set up a new term loan to consolidate and pay off higher-interest debt, saving money in the long run.

Frequently Asked Questions (FAQs) on Readvanceable Mortgages

Final Thoughts

A readvanceable mortgage gives homeowners in Canada a flexible way to manage their finances through a hybrid solution, allowing them to pair a mortgage with a secured line of credit. A readvanceable mortgage allows easy access to home equity for various needs, such as renovations or emergencies, as you pay down your mortgage. Using this mortgage solution wisely and with financial restraint through a solid plan for utilizing and repaying the funds is essential.

If you want to discover how a readvanceable mortgage can work for your mortgage strategy, contact nesto’s mortgage experts to help you find the best mortgage that fits your unique needs and financial circumstances.

---

Why Choose nesto

At nesto, our commission-free mortgage experts, certified in multiple provinces, provide exceptional advice and service that exceeds industry standards. Our mortgage experts are non-commissioned salaried employees who provide impartial guidance on mortgage options tailored to your needs and are evaluated based on client satisfaction and advice quality. nesto aims to transform the mortgage industry by providing honest advice and competitive rates using a 100% fully digital, transparent, seamless process.

nesto is on a mission to offer a positive, empowering and transparent property financing experience – simplified from start to finish.

Contact our licensed and knowledgeable mortgage experts to find your best mortgage rate in Canada.

---