Don’t put off getting your line of credit set up

In June 2012, the Minister of Finance announced that mortgage amortizations would be shortened once again. This time the maximum amortization would be down to 25 years from 30 years.  This would not affect existing mortgage but only affect those making new purchases. However, in the same week the OSFI , the Office of the Superintendent of Financial Institutions Canada, a division of the government of Canada also announced changes that could affect Canadians even more.

    The OSFI announced that effective October 31^st , the maximum amount that you could finance your home using a Home Equity Line of Credit (HELOC) would drop from 80% of the house value to 65%.

 How will this affect your average Canadian? If you were thinking about opening a line of credit to give you funds for finishing the basement, re-doing the roof , paying for a wedding or even buying a car, you will be limited in how much cash you can pull out of your home’s equity as of October 31^st.  If you have ever made a large purchase you know that paying cash gets you a better price. HELOC’s give you the option to pay cash and then pay the amount down over time when you have extra cash, while having an interest rate at or near bank prime rate. This is one of the cheapest forms of credit and it will be limited  soon.

   My advice is to establish a line of credit now even if you are not planning on using it right away. The reason being, that all lines of credit up to 80% will be grandfathered and you will have the freedom down the road of having re-advance able credit using 15% more of your house equity.

    Here’s another fact you should be aware of, Eco-rebates from CMHC and Genworth. When you purchased your home you paid a premium to CMHC or Genworth to insure your home. This may have been over $10,000 . Did you know that if you make your home more energy efficient you can get 10% of your premiums returned to you?  Did you know that there’s no DEADLINE on how long after your home purchase you can claim this rebate? $1000 could pay almost half of the cost of new furnace, or for a new window. You can find out more about this program by visiting CMHC’s website here http://www.cmhc.ca/en/co/moloin/moloin_008.cfm If your home was insured with Genworth, they have a similar program http://www.genworth.ca/homeownership/pdfs/Product_Overview_EEHP.pdf

    Why do you have to act now if there’s an October 31^st deadline? Experience has taught me that when these restrictions are announced the banks tend to react quickly and they won’t wait until October to implement the changes. I would think that by Labour Day we will see all the banks using the new guidelines. Now is the time to act. Call or email me at http://davidcooke.ca and we can discuss whether this is a good option for you.