HELOC LTVs Could Drop From 80% to 65% - Calgarypuck Forums - The Unofficial Calgary Flames Fan Community

chemgear · 05-08-2012, 01:55 PM

Interesting if you haven't come across this yet. This came out earlier last month but going through some numbers I had a question for the smart CP minds out there/in this field.

http://www.canadianmortgagetrends.co...-80-to-65.html

Last week, Canada’s top banking regulator Julie Dickson explained why to BNN:

"We started to see [HELOCs] being used as a substitute for a mortgage. Instead of having a mortgage on a house, you had a HELOC only, and that is not what these HELOCs were designed for originally. That's why we suggested in the guideline strongly that there be a loan-to-value ratio of a maximum of 65%."

My question comes from BMO's Q1 release:

http://www.bmo.com/ir/qtrinfo/1/2012...Transcript.pdf

In our HELOC portfolios, the average loan-to-value is 54% . . .

I think BMO is the only major Canadian bank that releases this information. Anyhow, should I be reading this as that the "average" HELOC has been tapped for 54% of the value of the respective property it is held against? Or that the remaining available credit is still 54%, or something else entirely?

The number seems rather high to me and I'm not sure if I'm missing the boat somehow. Thanks in advance.

photon · 05-08-2012, 02:09 PM

For a $100,000 house, a conventional mortgage would have a maximum amount of $80,000 (80% LTV). A high ratio mortgage would have up to $95,000.

I read it as meaning that for a house worth $100,000 the average HELoC is $54,000.

That number by itself doesn't mean a whole lot though without the context of the time involved (a heloc at 54% after 1 year of getting it is awesome, after 50 years not so much).

I mean a heloc at 80% LTV that never goes down could be great as long as the money that should be paying it down is going into investments or something.

ranchlandsselling · 05-08-2012, 02:22 PM

I got a client an 80% LTV HELOC and they went and paid off the entire mortgage of a place in Hawaii that was more expensive debt. This client has some financial wherewithal and has subsequently paid down the mortgage to 35% in short order and likes paying off large components at a time. It will likely be at 0% in 18 months. After this the HELOC may again be tapped partially or in its entirety for future investment purposes. Why punish the good because the bad are stupid. Make the banks take a greater responsibility for the lending they do.

Again look at the rates they earn on personal LOC's. I have three available to me and I wouldn't be able to get an HELOC. But I can get a ton of personal LOC debt available to me at higher rates as well as $20,400 in potential credit card funds. Tell me where the real problem is and where the regulators should be focusing their attention.

photon · 05-08-2012, 02:28 PM

I assume the concern would be that people are paying interest only and thereby are never paying down their houses. Though going from 80% to 65% doesn't fix that, it just reduces the bank's risk if the borrower defaults I guess.

blankall · 05-08-2012, 02:36 PM

What's the typical interest rate on a HELOC?

Cecil Terwilliger · 05-08-2012, 02:38 PM

Quote:

Originally Posted by blankall

What's the typical interest rate on a HELOC?

Not too much above Prime. Maybe prime plus .25-1%.

FurnaceFace · 05-08-2012, 02:47 PM

Am I the only one who read the title as "HELOC LCD TVs" and went into the thread looking to find out which TVs had a huge price drop and where I might get one?

Oh the art of skim reading.

GP_Matt · 05-08-2012, 02:47 PM

Banks will go down to prime even if they see you as a good customer. I have prime plus 0.5 but they told me they would drop it to prime if I brought my investment accounts over to their bank.

Red · 05-08-2012, 03:07 PM

They want to add a repayment terms to the loans as well. That could be a bigger development than LTV.

JohnnyHowDoO'duya · 05-08-2012, 03:17 PM

so clients with existing HELOC's will see their limit decreased or this is only for new applicants?

Nufy · 05-08-2012, 03:24 PM

My mortgage is a HELOC. I got it a few years back at prime but they would only give me 55% of the value of the house. It was enough to cover the outstanding mortgage so I went with it...

Currently sitting at 3% as per my last statement...

darklord700 · 05-08-2012, 03:26 PM

This is the right move. BOC can't jake interest rate up too much or everyone will be in trouble. To reign in real estate prices, they can cap HELOC at a lower LTV rate, thus, eliminating certain people using their house as an ATM.

Still at 54%, that's pretty high.

bizaro86 · 05-08-2012, 03:45 PM

Quote:

Originally Posted by FurnaceFace

Am I the only one who read the title as "HELOC LCD TVs" and went into the thread looking to find out which TVs had a huge price drop and where I might get one?

Oh the art of skim reading.

No, no, the bank of canada wants you to get a HELOC and buy a new LCD tv to stimulate the economy.

bizaro86 · 05-08-2012, 03:47 PM

Quote:

Originally Posted by JohnnyHowDoO'duya

so clients with existing HELOC's will see their limit decreased or this is only for new applicants?

It seems like it would have to be for new loans, or maybe a timeframe for existing HELOCs to get paid down to 65%. Otherwise, someone with a total LTV of 80% on a 400k house has to come up with a 60k payment right away, which would be a problem for most people, I suspect.

photon · 05-08-2012, 03:48 PM

Quote:

Originally Posted by blankall

What's the typical interest rate on a HELOC?

I've got two at prime - 0.5%

bizaro86 · 05-08-2012, 03:55 PM

Quote:

Originally Posted by photon

I've got two at prime - 0.5%

Can I assume you didn't get those recently?

photon · 05-08-2012, 04:02 PM

Quote:

Originally Posted by bizaro86

Can I assume you didn't get those recently?

Heh yeah it's been a while, but even when I got them they were pretty rare I think. It wasn't long after I got them that I was getting a new property and no one I talked to (brokers) could even match it, and even BMO (where I have them with) wouldn't give them to me anymore.

bizaro86 · 05-08-2012, 04:06 PM

Quote:

Originally Posted by photon

Heh yeah it's been a while, but even when I got them they were pretty rare I think. It wasn't long after I got them that I was getting a new property and no one I talked to (brokers) could even match it, and even BMO (where I have them with) wouldn't give them to me anymore.

Yeah, that's a pretty excellent rate. The best I've been able to negotiate lately is prime +0.5, which is a pretty substantial difference when borrowing enough money for another downpayment.

onetwo_threefour · 05-08-2012, 04:12 PM

Quote:

Originally Posted by fotze

I have a RBC house line of credit that I got when I had a mortgage with them. Gt a statement every 3 weeks for $200k. Never used it, don't even know how to use it. Is this a bad thing to keep or should I tell them close it?

If you're not using it it's actually a good thing to have on title IMO. It's not costing you anything and FWIW, it may make your property slightly less attractive to potential fraudsters. It can be easier to perpetrate a fraud against a clear title than in that haa a mortgage registered on it.

GP_Matt · 05-08-2012, 04:36 PM

Quote:

Originally Posted by photon

Heh yeah it's been a while, but even when I got them they were pretty rare I think. It wasn't long after I got them that I was getting a new property and no one I talked to (brokers) could even match it, and even BMO (where I have them with) wouldn't give them to me anymore.

I had that with CIBC a few years ago but they sent me a letter raising it up to prime plus one. I fought a bit and knocked it down to prime plus 0.5 but could go no lower without buying more products from them.