Upcoming Changes to Helocs and Re-advanceable Mortgages

September 12, 2023

Key points:

  • The Office of the Superintendent of Financial Institutions (OFSI) is introducing changes that will impact HELOCs and re-advanceable mortgages.
  • The cap to arrange a re-advanceable mortgage on a property will drop from 80% to 65% loan-to-value.
  • These changes take effect November 1.

New changes from OFSI

OFSI has introduced new guidelines that will have a big impact on the mortgage industry. I was recently featured in a Toronto Star article detailing these changes. Here’s what you need to know about the new rules, and how they will affect HELOCs and re-advanceable mortgages.

Don’t feel like watching? Find the full transcript below!

Chris: [00:00:00] We’ve got new changes being introduced by the regulator on November 1st that are going to impact lines of credit and re advanceable mortgages. Let’s dive right in and review what those changes are.

How the current guidelines work

Chris: [00:00:11] First off, who is introducing these changes? It is the Office of the Superintendent of Financial Institutions under their guideline B-20, which basically guides banks and lenders that are regulated by OSFI in terms of what the rules around lending are across the industry. And I’m not going to read all this, of course, but one important box sticks out here says that OSFI expects that any and all lending above 65% loan to value will be both amortized and non re advanceable. Currently it is re advanceable. Principal payments applied to the portion above 65% should be matched by a reduction in the overall authorized limit until this overall combined loan plan authorized limit reduces to 65% loan to value for all segments on a combined basis. It’s a mouthful, but let me explain a little bit further.

Chris: [00:01:03] Under the current rules, it’s possible to arrange a re advanceable mortgage up to 80% of the value of your property, which I’m showing you here in this illustration. Now, let’s say that as you make your mortgage payments, your principal payment in each payment is $1,000. You paid down your mortgage by 1000, which means that if you have a re advanceable mortgage or HELOC, immediately as you pay it down by 1000, you can, your line of credit limit grows by $1,000. And that’s the problem that OSFI has because essentially you can borrow back whatever you pay down and keep your overall debt limit at 80% loan to value and never budge or move from there.

Introducing the new changes from OFSI

Chris: [00:01:48] And what OSFI is asking for banks to do going forward starting November 1st on all new applications is that they reduce the amount that is re advanceable under these mortgages. So, for example, if we’re paying down our principal by $1,000, then the line of credit can only grow by a certain proportion. In this example, I’m saying 50%. So every $1 that you pay down your mortgage, you get $0.50 of access on your line of credit. This arrangement will continue until the mortgage represents 65% of the property’s value, at which point the 1 to 1 ratio that previously was allowed will continue. So effectively, if you pay down $1,000 in principal, you get a $1,000 of access on your line of credit.

Chris: [00:02:38] This change may not impact everyone equally. This is really for mortgage applications going forward, and it represents a tightening of credit conditions which will express itself going forward because many people rely on HELOCs for business expenses, for investments, for purchases, for example, very popular in the purchase of rental properties, accessing equity in your own home to purchase other real estate and investments. I was recently featured in a Toronto Star article, which I will include a link for where I give my opinion on some of these changes and how it impacts borrowers.

Need more help or information?

Chris: [00:03:16] My name is Christopher Molder. I am a Toronto based mortgage broker. If you found any value in today’s content, please consider giving me a like or subscribing to my YouTube channel. It helps me create more content just like this. If you have any questions or concerns about how these changes may impact your mortgage, the door’s always open. Till next time. Bye for now.

If you’d like to discuss your mortgage, you can contact me here or schedule a convenient call time directly into my calendar below.