I have really good intel and from Mortgage guru Jake (aka Jake Abramowicz) about the latest change in the financing world. ———————–
Do you have a HELOC? me: do you know what a HELOC is? Home equity line of credit…..I hate acronyms
Do you deal with clients who have HELOCs?
Do you have clients who have HELOCs and leverage them to buy more property?
Big news (and it’s not great, but there are ways around it). TD Bank and RBC just came out with a new policy where even if you do not touch your HELOC, they assume you WILL maximize it and therefore will count that repayment against you.
What does this mean? It means that the next lowest-hanging fruit in the war on debt is the Home Equity Line of Credit. With an average debt of $97000 per mortgaged household, the HELOC is a dangerous debt machine that’s – in the eyes of the regulators – spinning out of control (it’s not, by the way).
Therefore, we’re seeing banks take a step ahead of the competition (the regulator) by implementing a new rule which will impact future borrowers IF they have a HELOC and even if they’ve never used it.
Example: You have a mortgage of $250,000 and a HELOC limit of $100,000 but a balance of $0.00
Under today’s guidelines I only count your mortgage payment against your liability in my borrowing ratios.
Under new guidelines with TD Bank and RBC, I have to count the $250,000 mortgage payment and the $100,000 HELOC limit as if it was taken out.
This now affects my GDS / TDS* (my borrowing ratios) which are usually maxed at 39 and 44%. (*To a lender, affordability translates into two things: Gross Debt Service Ratio (GDS) and Total Debt Service Ratio (TDS). GDS and TDS are two mortgage formulas that lenders use to determine exactly how much money they are willing to lend you.)
This now affects my ability to borrow to buy another house, to refinance, or to invest.
Crazy eh? reach out if you need clarification Cheers BT