What's a re-advanceable mortgage?
It's a mortgage where a borrower can continuously access their home equity as they build equity without the need to refinance and incur penalties.
How does a re-advanceable mortgage work?
Typically, the mortgage is set up to 80% of the home value and it's split up into a mortgage and a line of credit. As the borrower builds equity, the line of credit increases up to the 80% original set up amount. For example, on a $400,000 home, the mortgage is set up at $320,000 (80% of $400,000) which in this case can be split up into $319,000 mortgage and $1,000 line of credit. As the $319,000 mortgage balance decreases, the line of credit increases for a total amount of $320,000.
Why should one get a re-advanceable mortgage?
This product is great for someone who is looking to use their home equity for investment purposes. For example the built equity can be used to invest into buying real estate investment, RRSPs, RESPs, a cottage or into the business. As long as the monies are tracked clearly, the interest portion of the line of credit which is used for investment purposes is tax deductible.
Does a re-advanceable mortgage cost more?
No, it doesn't. The borrower gets the best discounted rates available the lenders.
Nawar Naji, AMP
Mortgage Broker - Mortgage Alliance
www.GTAmortgageAdvisor.ca
