HELOC LTVs Could Drop From 80% to 65%

[ranchlandsselling]

Originally Posted by photon

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.

They should focus on credit cards that remain at their full balance. Maybe start to make credit cards amortize. That would rein in stupid consumer debt/spending.

Originally Posted by darklord 700

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.

HELOC's aren't fueling real estate prices. If real estate prices are indeed being fueled it's the 95% LTV, low interest rates and lax qualification standards.

Giving someone a HELOC up to 80% on its own or combined with a conventional mortgage isn't encouraging the market to go nuts.

The guy with 80% debt on his house concerns me much less than the guy with 95% and $30k in credit card debt and $50k in a personal line of credit.

Limit amortizations on personal lines of credit to 7.5 years. No interest only payments. Do the same for credit cards. Increase tighter approval limits for credit cards. Do away with the 1.99% cheques the credit card companies issue so that you can spend more at Christmas/mothers day/easter/summer vacation etc.

[Regulator75]

When I clicked this thread, I thought it had something to do with some fancy new TV's.

[bizaro86]

Originally Posted by ranchlandsselling

Limit amortizations on personal lines of credit to 7.5 years. No interest only payments. Do the same for credit cards. Increase tighter approval limits for credit cards. Do away with the 1.99% cheques the credit card companies issue so that you can spend more at Christmas/mothers day/easter/summer vacation etc.

That's actually a pretty big change. Example: a 40k HELOC at prime plus 1 (4%) has a payment under the current rules of $133. If you changed to 7.5 year amortizations, that goes to $515, which is a pretty significant change.

[ranchlandsselling]

Originally Posted by bizaro86

That's actually a pretty big change. Example: a 40k HELOC at prime plus 1 (4%) has a payment under the current rules of $133. If you changed to 7.5 year amortizations, that goes to $515, which is a pretty significant change.

I said personal LOC's, and 7.5 was just a random number. Maybe 10 or 15 to start. Also they shouldn't be transferable or you'd just get borrowers jumping from bank to bank. Paying out one to restart the new one.

Maybe make an exception for student lines, or business lines.

Honestly, the guy/gal/family buying the $500,000 house with $100,000 down for an 80% HELOC or mortgage/HELOC combo isn't the problem. Those people aren't driving up home prices or getting out of control.

The individuals who take equity out but still are at 80% may be bright or stupid, but they're still not inflating housing prices unless they're buying more houses but that's their own prerogative and if the lending institution wants to lend them that money it becomes the lenders issue.


.

[bizaro86]

Originally Posted by ranchlandsselling

I said personal LOC's, and 7.5 was just a random number. Maybe 10 or 15 to start. Also they shouldn't be transferable or you'd just get borrowers jumping from bank to bank. Paying out one to restart the new one.

Maybe make an exception for student lines, or business lines.

Honestly, the guy/gal/family buying the $500,000 house with $100,000 down for an 80% HELOC or mortgage/HELOC combo isn't the problem. Those people aren't driving up home prices or getting out of control.

The individuals who take equity out but still are at 80% may be bright or stupid, but they're still not inflating housing prices unless they're buying more houses but that's their own prerogative and if the lending institution wants to lend them that money it becomes the lenders issue.
.

Gotcha, sorry. I think the best way keep things rational would be to tight standards on how much mortgage people can qualify. Don't necessarily make joe and jane average come up with more than 5%, but maybe their average Calgary income should only qualify for a 400k mortgage instead of a 500k mortgage. That also helps affordability in the future if interest rates pop up, and doesn't keep most people out of the market completely, just restricts the cost of what they can buy.

[ranchlandsselling]

Originally Posted by bizaro86

Gotcha, sorry. I think the best way keep things rational would be to tight standards on how much mortgage people can qualify. Don't necessarily make joe and jane average come up with more than 5%, but maybe their average Calgary income should only qualify for a 400k mortgage instead of a 500k mortgage. That also helps affordability in the future if interest rates pop up, and doesn't keep most people out of the market completely, just restricts the cost of what they can buy.

Yup, sensible leading is the best way to go. However, sadly the banks need someone to make them do it as one isn't going to give up the business on it's own. CMHC is there to back up the banks so they just fill out the paper and cross their T's, dot their I's and push it out the door.

That's where you get into the debate about changing CMHC and the government interfering. I just thing they're going about it the wrong way and or after the wrong segment of the lending market.

I guess maybe they don't go after the CC's or the personal lines as the government doesn't have any in or out other than OSFI whereas CMHC is something they can control. CMHC doesn't get involved in direct lending on HELOC's and purchases under 80% however the banks can still go and buy the insurance in bulk on large amounts of mortgages they hold.

[Sr. Mints]

Damn, I thought this thread was about some kind of massive TV sale.

[chemgear]

Sounds like it might be a done deal:

http://www.canadianmortgagetrends.co...to-values.html

We’re hearing from multiple sources that a 65% loan-to-value maximum is now a done deal for HELOCs.

The HELOC LTV limit is currently 80%.

Most (but not all) banks are reportedly supporting the measure. Although, bank execs are known to say different things in private than they do in front of regulators.

[GP_Matt]

I wonder how they will implement it. ie. will those with balances above 65% be forced to roll the balance into an unsecured LOC at a higher interest rate or a conventional mortgage or will existing be given a grandfather period.

All in all, I think it is a bit of overkill as many people use a HELOC quite responsibly and to good effect.

[photon]

Hurts the people that use a HELOC responsibly, and those that don't will just rack up consumer debt some other way.. higher interest credit cards...

Maybe that's the plan by the banks, get a better rate on consumer debt by having customers get a mastercard at 18% instead of a HELOC at prime+.

[bizaro86]

Originally Posted by photon

Hurts the people that use a HELOC responsibly, and those that don't will just rack up consumer debt some other way.. higher interest credit cards...

Maybe that's the plan by the banks, get a better rate on consumer debt by having customers get a mastercard at 18% instead of a HELOC at prime+.

I think it also might be a backhanded way for the gov't to crack down on people doing the Smith Maneouvre to save taxes. I have a heloc at 80% that I use for real estate investments, and I hope they allow a reasonable amount of time for rolling those over into mortgages, etc.

[GP_Matt]

I assume people will still be able to renew their mortgage to take out any equity up to 80% as in the past. That is effectively the same as a HELOC but with more paperwork and time involved.
I wonder if going forward the banks will introduce a new "readvancable" mortgage that allows you to continually alter the principal amount of your mortgage to take out or repay cash. It will be just like a HELOC but have a different name and likely cost more to setup.

Photon has a good point as well in that the people on the margins that the rules are supposedly trying to help will likely turn to credit card debt and start paying 19% interest instead of 4%.

[photon]

Originally Posted by bizaro86

I think it also might be a backhanded way for the gov't to crack down on people doing the Smith Maneouvre to save taxes. I have a heloc at 80% that I use for real estate investments, and I hope they allow a reasonable amount of time for rolling those over into mortgages, etc.

Yeah me too, if they don't then I might have to sell a property or two, or deal with some properties' cashflow going way down.

[bizaro86]

Originally Posted by photon

Yeah me too, if they don't then I might have to sell a property or two, or deal with some properties' cashflow going way down.

Hopefully they leave a reasonable amount of time for that. This change will probably require me to sell a property to get my HELOC down to 65%, and I'd like to be able to take a reasonable amount of time to do that.

I could try and refinance my mortgage up, but I'll probably have to pay a penalty to do that as the rate is higher than what's currently available.

[Slava]

Originally Posted by chemgear

Sounds like it might be a done deal:

http://www.canadianmortgagetrends.co...to-values.html

We’re hearing from multiple sources that a 65% loan-to-value maximum is now a done deal for HELOCs.

The HELOC LTV limit is currently 80%.

Most (but not all) banks are reportedly supporting the measure. Although, bank execs are known to say different things in private than they do in front of regulators.

The only thing that shocks me here is that in this link it looks like they won't grandfather this either. I would imagine that there are a lot of mortgage brokers and banks who are somewhat excited at the prospect? I have no idea what that market size would be, but they could write a ton of new mortgages here with a flood of people who need to drop their current HELOCs I would guess?

I don't begrudge them anything in the sense that they will likely lose out on some business going forward, and its not like they have been campaigning for this change, but I can see some guys benefiting from that change.

[GP_Matt]

Originally Posted by bizaro86

Hopefully they leave a reasonable amount of time for that. This change will probably require me to sell a property to get my HELOC down to 65%, and I'd like to be able to take a reasonable amount of time to do that.

I could try and refinance my mortgage up, but I'll probably have to pay a penalty to do that as the rate is higher than what's currently available.

Most banks will let you "blend and extend" if you want to renew your mortgage early and it shouldn't carry a penalty. Essentially they figure out a new rate that is lower than your current rate but not as low as the rates currently offered and then set it as a new 5 year term. Negotiating this rate would be a pain though because of the math involved.
They do it if you have a few years on your mortgage but want to take advantage of lower rates so I am sure they would allow you to roll the HELOC in at the same time.

[ranchlandsselling]

Originally Posted by GP_Matt

Most banks will let you "blend and extend" if you want to renew your mortgage early and it shouldn't carry a penalty. Essentially they figure out a new rate that is lower than your current rate but not as low as the rates currently offered and then set it as a new 5 year term. Negotiating this rate would be a pain though because of the math involved.
They do it if you have a few years on your mortgage but want to take advantage of lower rates so I am sure they would allow you to roll the HELOC in at the same time.

Often they'll just work the penalty into the new rate.
So if you have 5%
Current rate is 3%
Blended rate let's say is 4%
They'll give you 4.1864% and you've just paid the penalty via rate. All it really does is lower your risk that you're going to renew in a higher rate environment. Often you're better hanging on or paying the penalty and moving on because a broker might get you a better overall rate. The 3% they're blending it with might also be higher than their best rate.

[GP_Matt]

Once the math becomes more complicated than we can work out quickly I lose all trust in the financial institution to get it right and explain it properly. Maybe I am jaded, but it always seems like they screw things up and from my experience the error is usually in their favour. No offense to Pylon, but this seems to be the case every time I have bought a new car from a dealership. The finance guy on the last three purchases has made mistakes in their favour that they denied, deflected and eventually corrected. Twice using a phrase like "Don't worry about it, it is right it just looks different because of the way the computer calculates it"

[bizaro86]

Originally Posted by GP_Matt

Most banks will let you "blend and extend" if you want to renew your mortgage early and it shouldn't carry a penalty. Essentially they figure out a new rate that is lower than your current rate but not as low as the rates currently offered and then set it as a new 5 year term. Negotiating this rate would be a pain though because of the math involved.
They do it if you have a few years on your mortgage but want to take advantage of lower rates so I am sure they would allow you to roll the HELOC in at the same time.

The mortgage is with an institution that no longer writes new business in Canada, so I'd have to get a new mortgage from someone else for more $, and pay them the penalty.

[GP_Matt]

Originally Posted by bizaro86

The mortgage is with an institution that no longer writes new business in Canada, so I'd have to get a new mortgage from someone else for more $, and pay them the penalty.

I have never tried, but can you get a second mortgage for the HELOC amount?