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The Pros & Cons of the Readvanceable Mortgage

December 9, 2014

Readvancable mortgages are another option available to home-owners today; whether you’re looking for increased flexibility or need to borrow money for any other purpose, the readvancable mortgage could be for you.

The initial requirements for a readvanceable mortgage is similar to any other “A” mortgage. The beauty of the readvanceable mortgage specifically takes place if you want to leverage/borrow the equity in your home at any point during the term of your mortgage i.e., after your mortgage has closed.

For example, you are two years into your mortgage term and you want to do any of the following:

• consolidate high interest credit card debts
• borrow money to make an investment or Smith manoeuvre
• renovate your home
• purchase a vehicle or another property etc.

Below are the pros and cons of a readvanceable mortgage that all clients should consider before signing on the dotted line:

Pros :

• Readvanceable mortgage allows you to separate your mortgages and lines of credits from one another to better manage each one individually to your specific needs
• You don’t need to go through the re-application process so your lender does not have to review your credit again
• You don’t require an appraisal so you don’t have to incur this cost again
• You don’t have to pay any new legal costs as your lawyer doesn’t need to review your mortgage documentation
• Your lender will not to confirm your income
• You can withdraw the equity in your home at any time
• On any Line of Credit portion, you only need to make interest only payments so you have additional cash flow and lower monthly payments
o Revolving facilities are helpful as you can re-borrow against them as you pay down the balance.

All the above is applicable to all clients in these types of mortgages for as long as you stay within your approved “equity” limit.

Cons :

• At the time of your mortgage renewal, a straight transfer is not possible because there is a collateral charge on the mortgage. Hence, you will need to pay legal costs if you wanted to move to another lender.
• Your negotiating power with your existing lender is reduced a bit because they know you will need to pay additional legal costs to leave them and go to another lender.
• You only need to pay interest payments on revolving facilities, so you are not paying down your principal, if you are not disciplined in the management of your finances, you may find yourself with a higher mortgage than you thought come the end of your mortgage term.

If you have any questions about readvanceable mortgages, please do not hesitate to contact me directly.

Thanks for reading.