So-called “readvanceable” mortgage holders should utilize this opportunity of low interest rates to bring the cost down through HELOC prepayments. By making prepayments now, often limited to 20%, and then making a prepayment at the anniversary day, say another 20%, you can accumulate up to 40% of your mortgage at a rate full 1.25% lower than your current rate. Over the long run, this is huge savings for the borrower and may create an opportunity to look for a better refinancing option, without incurring penalties.
- A readvanceable mortgage is a two in one deal that bundles together a normally amortizing mortgage with a line of credit, or a HELOC loan.
- Certain mortgage entities regularly use readvanceable mortgages, such as RBC Homeline, or National Bank All-In-One.
- Jason Heath is a Managing Director at Objective Financial Partners Inc. According to Heath, mortgagers “have an opportunity to bring down interest costs by using a HELOC to make prepayments.
“In other words, if you have two years left on the main 5-year fixed portion, you can prepay it using your HELOC and then roll that HELOC debt into a cheaper 2-year fixed.”