This post was inspired by a reader who left a comment on one of my previous blog posts, namely the post on “Who You Should Choose to Get Your Mortgage Through” where I shared a story of a loyal bank customer insisting on obtaining a mortgage from his bank, when our recommendation was to go with another lender in light of his unique circumstance. I went on to explain the different ways that each lender calculates penalties upon early prepayment and breaking of the contract.
The reader commented about lines of credits, and how lenders were tightening up their “risk exposure”, so I thought that I would write a post to clarify some things about lines of credits, as this is something that does come up from time to time.
In order to illustrate, let us look at the following example:
Suppose you had a home that was worth $500,000 and you had a $100,000 mortgage from one lender and also a $100,000 line of credit from another institution. When your mortgage comes up for renewal and you want to renew it, your choice is to either stay with that same institution or transfer/switch your mortgage over, dollar for dollar, to another institution.
In order for you to be able to do that you require the permission of the lender that issueed that line of credit. They have to grant, what is called a grant priority or offer priority agreement allowing the new mortgagor to go in front of them on title.
Where we run into issues is when you want to get an extra five or ten thousand dollars out to pay off your credit cards or what have you. If you simply want to move from one lender to another and keep everything else on your mortgage the same, the remaining amortization, the outstanding balance etc., then it shouldn’t be a problem.
But otherwise, whenever you want to borrow some more money against the home, and make any changes to the features of the original mortgage contract, then you will have to get rid of the line of credit.
Now this doesn’t mean that we can’t set another one up with the new institution, what it means is this existing line will have to be collapsed as part of the process.
Having said that, of course there are examples of ways you can do the mortgage without having to re-do the line of credit, so If you have any questions about this or you want to see if there is a workaround for your particular situation, please give me a call.