So for anyone wondering about the details of how a lender sets these up...
I will use manulife one as an example, cause they were just giving us a presentation a couple weeks ago and it’s fresh in my head still.
So step one is appraisal, using round numbers let’s call it $500k
So for an uninsurable loan (which is the only non recourse loan you can get, cause cmhc/genworth, etc will come after you for the difference, cause don’t get it confused. The insurance you paid for isn’t for you. It’s for the lender) maximum LTV is 80%, maximum non conforming loans are 65%
So $100k down
$400k collateral charge registered on title
$75k in a non readvancing term mortgage (fully conforming loan, meaning max am of 30yrs too)
$325k in a readvancing term mortgage
As the two different mortgages inside the product are paid down the principal from the equity paid on the $325k mortgage converts to space on a HELOC, since this is the non conforming part of the loan at any point you can take that heloc balance and also lock it into a new term with whatever duration and am you want.
So your liquidity issue is solved, fluctuations in house value are only a concern if something serious happens and at renewal and the lender requests an appraisal to renew (FYI: even with the haircut to the condo market, we have yet to have anyone have a client call in this situation) the $400k charge remains on title till you no longer have your business with that lender as you essentially will have access to that money (minus the 15% loan, which will hopefully be the last priority you have to pay off) till you make a change. If the market increases in value you can also request an increase to that numbers
But since this is all one charge on the title, it’s all one loan. So for osfi compliance the whole $400k amount is used with a 25yr am at the heloc rate plus 2% for qualifying. So that to me makes me think that it’s nonrecourse in it’s entirety, cause the whole thing is basically just a mortgage, and within that mortgage the lender is the one that’s dictating the terms of repayment.
So set readvancing loan to a short am, non readvancing to max am, crush loan. If you could potentially be underwater, withdraw full heloc, mail in the keys, 80s style
Another note worthy feature though... this loan pays itself out of the heloc portion every month, so in a period of no income, your bills will pay themselves, and bruised credit will only start when the heloc runs out of room and you are not making the minimum payments to keep it off the limit
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But if you didn’t pay it down to begin with... was it even really your money?