It’s possible to combine them.
You’ve undoubtedly heard about both mortgages and lines of credit. You may also know that, like a mortgage, a line of credit can be registered against your home, allowing you access to a lower interest rate. What you may not be aware of is that these two financial products can actually be combined into one. There are several versions of this available from a variety of lenders, but they all function in essentially the same way.
Normally, you might have both a mortgage and a home equity line of credit (HELOC) registered separately against your property. There are, however, some advantages to combining the two into one charge. Lenders that offer this will approve you for a “global limit” that you can borrow, and this amount will be noted on your home’s title as one item. They can then split the amount into a mortgage portion that will come with the regular interest rate, terms, and payments and a HELOC portion. You can withdraw additional funds from the line of credit as needed, and repay the required interest only minimum or the entire amount. As the mortgage is paid down, some lenders allow the line of credit limit to increase in proportion.
One of the benefits of this arrangement is that it’s less costly at closing to only register a single charge rather than two. Having a large line of credit also provides a lot of flexibility in terms of cash flow – a great thing to have if you’re wanting to do renovations or make improvements to the property, but don’t want to deplete your savings, or if you’re able to invest the money at a higher rate of return than the required payments.
The combination mortageg and HELOC also makes it easy, if your house increases in value or if you decide you want access to more money, for the lender to increase your borrowing limit without having to re-register the charge against your property.
There are a couple of drawbacks and limitations to this kind of arrangement, as there are with almost anything. The government limits HELOCs to 65% of the value of the property, though in combination with a mortgage you can borrow up to 80%. They also can’t be switched from one lender to another without incurring legal fees, as the charge must be re-registered with a lawyer. It can also be very easy for people to become unmanageably indebted when given access to a large and tempting line of credit. Overall, combination mortgage and line of credit products can be very useful and beneficial for many people, but they are definitely worth consulting your mortgage professional about. Give us a call and we can talk about whether this is the right solution for you.
