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Re-advanceable Mortgage is a single mortgage that consists of two parts:
1. A “mortgage” portion at fixed interest rate
2. A line of credit (LOC) portion with variable interest rate.
A “Readvanceable Mortgage” requires no increased borrowing, and as the homeowner pays down the principal of the original mortgage with monthly payments, a borrower then immediately has that amount of principal available in Home Equity Line of Credit. Mortgage holder immediately has that amount of principal in order to invest in equities, mutual funds, bonds, business, real estate or personal needs.
The maximum available is up to 80% of the property value.
House value = $400000
Fixed mortgage = $250000
Desirable HELOC = $70000
Total Charge = $250,000 + $70,000 = $320,000 dollars (80% of $400,000)
Your income has to support $320,000 to obtain $70,000 HELOC. If you do not qualify, lenders reduce a HELOC portion. Do not expect to max out on your Equity. And don’t worry when you see a total charge of $320,000 (in our example) in mortgage commitment. Your mortgage payments are based on the remaining mortgage amount.
Here’s another example. Suppose you have a $250,000 re-advanceable mortgage. Your monthly payment will be $1383.68 (assuming 4.5% interest and a 25-year amortization). Of this $1383, let’s suppose $930 is interest and $455 is principal.
With a re-advanceable mortgage, as soon as you make a mortgage payment you can then borrow back whatever principal you’ve paid. With $1363 payment above, $ 455 dollars will become available to you at once.
After 5 years your fixed mortgage will decrease to $ 219 491 and you HELOC portion will increase to $ 100 509 dollars.
The more payments you make, the more your credit line grows. The best part is that you don’t have to reapply for additional credit.
Re-advanceable mortgages are great for people who need a growing source of funds for:
Unexpected expenses – in case when you need extra money to help your friends or family, or make a necessary purchase.
Investments – you use HELOC as an investment loan, to buy real estate, stocks and mutual funds. Learn more how you can make it tax deductable.
The Smith Manoeuvre – a strategy that was created to make your mortgage tax deductible by utilizing total HELOC portion. Find out more.
Unexpected job loss – if you lost your job and need money to maintain necessary lifestyle before finding a new one.
Business development – when you require extra funds to purchase equipment or expend your business.
Health care expenses – in case when your family member become sick and you need money to for medication.
Education costs – you can use your equity to send kids to university without going into high interest loans.
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