Home Equity Lines of Credit (HELOC’s) are revolving lines of credit secured by a mortgage over either a personal residence or rental/investment property. In June, 2012 the Office of the Superintendent of Financial Institutions Canada (OSFI) announced changes to the guidelines governing how Federally Regulated Financial Institutions approve and manage their HELOC programs.
Under these new regulations the maximum amount that can be borrowed on a HELOC is limited to 65% of the property’s value (LTV). If the HELOC is part of a mortgage package that includes a traditional term mortgage the total of both obligations can go as high as 80% of the property value provided the HELOC account is limited to 65% LTV. This means you could have a fixed/variable rate mortgage for 15% of the value of the property plus the HELOC product for 65% of the value to take you up to 80% of the value.
Borrowers who currently have a HELOC in excess of 65% LTV won’t be immediately affected by these changes. These accounts will be grandfathered under the old guidelines, but should they wish to modify their HELOC, or a mortgage package that includes a HELOC, they will have to fall under the new guidelines at that time.
While federally governed financial institutions have until their ‘fiscal year-end 2012’ to comply with these changes most have already done so. At this point there have been no changes to the rules governing provincially regulated financial institutions such as credit unions.