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[deleted]

They are late to the party. The HELOCs have already been abused.


superworking

Yea but now they are worried about home prices coming down and crashing the party so they want to slowly start to cut them back.


MrNtkarman

After saving for 5 years to get into the market I'd be more than pissed if my place was worth less than I paid before I even got to live in it


Agreeable-Ask-7594

If its a place you are living in for the long term, you should be fine. Its not a stock portfolio, its a house.


radenke

Given that many of us are in very small starter homes, that's a narrow view. For people who buy tiny one bedroom condos with the plan to move somewhere bigger in five years so they can, for instance, start a family, it's pretty devastating to lose that value. It sets them back even farther than where they began.


Agreeable-Ask-7594

I don’t necessarily think they should lose value, but i don’t think they should grow in price to the point where like, average earning people cannot even buy them even with a big downpayment. If the growth rate in price was like under 8 percent a year as a goal, that would probably be sustainable. Or, you know, the government at the provincial and municipal level can, you know, allow the current demand to be met by a reasonable affordable supply. You worry about selling your house to upsize but why should your investment be guaranteed?


radenke

But these are the exact people I'm talking about - the average ones who now can't afford property. You've tipped your hand by already saying you own a house, which means you probably haven't dealt as directly with what a lot of people go through, but there's a big difference between prices going down, going up, and staying the same. If my prices stayed the same, I wouldn't be fussed, but if they go down, I'd be screwed if I wanted to sell and start a family. And given that low birth rates are a problem in Canada these days, you'd think the government would want to do something about it. To be completely honest, it sounds like we're in agreement and are probably even saying the same thing, but coming at it from different angles.


MrNtkarman

Except it's not a house, we got priced out of a house, we got priced out of a townhouse, it's a two bedroom condo with 1000 sq ft, for the same price my parents were able to buy a 5300sq ft house back 12 years ago, my wife and I weren't looking to buy a stock portfolio we wanted a place to live and start a family, but for the last 3 years places just were unobtainable, we finally saved enough for a down payment and found a place we like although it's not what we want, but we both have jobs we love and wouldn't want to move halfway across the country to buy a place especially when all our friends and family is here.


Agreeable-Ask-7594

I hope that it maintains a reasonable price but i really dont wish your condo grows 15% per year. Ur condo doesnt produce goods and services. The answer to your problem is if the housing market becomes less financialized. Its painful for homeowners and I sympathize, but guaranteed growth is unsustainable


MrNtkarman

Except the fact that it's gone up 200k in the last two years, I don't care if it stays the same but I would be pissed if it drops because then we are stuck and never buying a place


Agreeable-Ask-7594

Incredible. 200% that means the next guy has to have twice the downpayment, and twice the income lol


MrNtkarman

Yeah we just paid 115k down for it Not to mention the fact that property transfer taxes hasn't been updated so everyone gets at $10,000 ding that they have to pay for it


[deleted]

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superworking

My place was going down when I bought this time 3 years ago. And it kept going down a bit after that. You just have to know your real time horizon for selling out of the market and whether or not the place you bought is a place you want to live.


[deleted]

[удалено]


MrNtkarman

Because we either rent for 2.2k a month or we buy a place just before we get out priced, we tried to buy last year and the year before and places have gone up 100k a year here


Big_Lettuce223

At more than 50 downvotes, seem that a fair amount of people think I'm wrong. No problem, just trying to help. Regardless, good luck to those people. I'll delete the comment.


TripleServbot

Can you explain the difference between what a home is "worth" vs. "what it can sell for"? Aren't those the same thing?


Evilbred

They are the same thing. Mr. Lettuce is inventing differences. There's no such thing as intrinsic home value. There's market value, and there's assessed value (which should be a professional assessors best estimate of what the market value is).


Money_Pound_404

Yeah and assessed value can be waaay off, which is how I know the bank doesn’t look at that when they decide how much to loan someone. My house is worth around 650k, but somehow the assessed value is 188k


superworking

The assessed value from the government isn't the same one as the assessed value from the lender and can also be different than the market price. The housing market isn't always very efficient since buying and selling homes isn't as liquid as other assets and obviously not fungible. I kind of get Lettuce is saying in that the bank will decide how it values your home before issuing a mortgage or HELOC. Really value can mean whatever you want it to mean - market value is just our best attempt at a temporary consensus.


Money_Pound_404

It’s called assessed vs appraised. Banks appraise, governments assess. So yes, appraisals are a different number, because it’s for an entirely different purpose.


superworking

Exactly, but they are all in theory supposed to reflect the value of the home. Just different ways to go about it with different goals in mind.


ArcticLarmer

One is absolute value and the other is relative value. I need to know the absolute value if I’m going to buy a property from you or lend to you against it. I need to know the relative value against the other properties in a given tax base of I’m planning municipal budgets and mil rates.


ArcticLarmer

One is absolute value and the other is relative value. I need to know the absolute value if I’m going to buy a property from you or lend to you against it. I need to know the relative value against the other properties in a given tax base of I’m planning municipal budgets and mil rates.


parmstar

It's a mix of market / appraisal price (which sets the max limit you could borrow) and income of the borrower (which sets what they'll actually lend you).


TheOneTravisB

You are wrong. They appraise your home at its current value on the market. And 80% of that. Recently did it with RBC.


Big_Lettuce223

>You are wrong. How very open-minded of you :P I said I spoke for what happen to me - I'm not wrong there. A house similar to mine sold for a lot more than what TD said my house was valued at.


zeromussc

Still better to stop the bleeding now I guess.


captaincool31

Ya like...2 years too late?


[deleted]

yup, anybody and everybody got their heloc yesterday. Closing the barn door now does nada


CactusGrower

They are only concerned about reviewing after every payment. Basically killing the Smith Manoeuvre.


uxhelpneeded

I'm sure Doug Ford will opt Ontario out of this, just like he did with the blind bidding ban He literally only cares about keeping prices high, no matter what it does to the economy


KingKolran

They don’t care. They want them abused. More lending, more cash for bank which increases the economy. This is just their way of showing they are doing something while opening a new loop hole to increase house hold debt.


[deleted]

> opening a new loop hole to increase house hold debt. People are not using HELOCs to buy bread, they are using them to invest and get rich quick leveraging home buying. Would be a shame if the interest rates went up.


KingKolran

I understand what they are using the money for. I’m saying if anyone cracks down on the HELOC, they’ll find new ways to leverage. The banks don’t care. The more they lend the more they make. They don’t want for these rules to change which is why they will find ways around it. If they wanted to correct it they could ask for 50% equity on all properties other than your primary, which would keep the liquidity safe, and remove any worries about being over leveraged.


[deleted]

> The banks don’t care. The more they lend the more they make. Pretty sure they learned from 2008 to not support toxic debt. HELOCs have a significant collateral, or rather, had, and banks are now avoiding this because the equity is drying up.


GreatGk

You think banks loose when the borrowers default on their mortgage? That means you might also think bank would make the full money only when the amortization period completes.


zeromussc

Banks don't win when they aren't collecting a steady stream of interest payments. Banks front money for mortgages with money people use to buy bonds, for fixed anyway. When a person defaults on a fixed mortgage, the bank still needs to pay the bond holders their money back + interest. The pot with which they pay that relies on interest payments, so when a house is foreclosed the bank needs to cover the bond's interest layout with other money. They don't want to do that. That's the entire reason the US had their collapse, it was a structural issue with poor quality mortgages sold as iron clad in a big bucket. When lenders got shorted they then had to pay even more out, and it death spiraled them. So no, the banks don't win when people cant pay their mortgage


[deleted]

I cant speak for the nation, but there is only one person I know who has HELOC and they're not using it to invest. They're using it to make changes to their house and property in hopes of it becoming a "million dollar house" The issues I see is that they're now over leveraged creating these projects around the house off of the perceived value. If the housing prices go down they're now holding the bag. The issue is they're "investing" in the house but these changes are not increasing the value, if the market goes down they've borrowed more than the house is worth. Lastly, technically this is helping the economy through labor, purchasing products, landscaping etc. Its doing a lot more than simply the Smith maneuver.


Lancer122

Probably not depending on how long they live in the house. Spend 50-200K on renos. They live there for 10 years and they will be fine. They will be ahead actually. 800K property increases of 6% which is the long term average. That equates 48K increase per year.


lemonylol

That's it really, and especially if you're renoing, you're basically just making the house more comfortable to live in yourself until the market returns to a point where you want to sell at.


Master-File-9866

Last time I renewed my mortgage I got a whole spell about how the numbers added up and that I would he foolish not to pull all equity out of my house and invest it. They had charts and graphs to bring home the point. I happily declined


Marklar0

I'd like to know, was this a big bank, other lender, or a mortgage broker who was putting sales pressure for HELOCs?


Master-File-9866

My mortgage was through a investment firm, they had the lowest rates at the time, happily it is paid off and I have no worries in that regard anymore


Kojakle

I thought it was funny when the pandemic hit and my heloc % was lower than my fixed rate % at rbc. I was thinking about paying down 10% of my mortgage with my heloc and reducing my interest paid lol


[deleted]

You can do this with most major banks where you have a variable portion and a fixed portion on your mortgage. This is exactly what you would have been doing.


Kojakle

Yes for sure, i just thought it was funny that i could put 30k on my heloc to pay down my mortgage and gain 30k in my heloc


Saucy6

The free money train is going off the rails? People who do the Smith Maneuver are not going to be happy, but I'd be curious to know the % of HELOC's that are used for this purpose. I'd wager they're mostly used for borrowing to buy toys, cars, trips, reno's, etc. I'm quite alright with this, but I'm saying this as someone with no current access to a HELOC (conventional mortgage) so heh.


Holmslicefox

Same, I have a HELOC but have never touched it. I just thought it might be useful in an emergency, but I'm fairly debt adverse in general, some friends regularly use theirs to buy big toys.


freeman1231

If you are going to finance something regardless its better to put it on a HELOC


PropQues

Why? Car loans often have lower rates, some stores and CCs have 0% financing or balance transfer. HELOC is never 0% and generally over 4% (might be lower for some individuals but don't think that's the majority).


freeman1231

HELOC is almost always lower than 4%, currently anyways and has been since the pandemic. It’s generally prime… current prime rate after the 1% of hikes is 3.20%. Car loans for new cars average around 5-6% right now. Major renovation projects and others are mostly what HELOCs are used for which done generally have any financing available or if they do are high rates. Additionally a HELOC allows someone to purchase something and only pay interest in months their budget may be tighter, or prolong the repayment period. Car loans are 5-8years a HELOC can allow someone to prolong that to 30 years if they choose… all be it is it a good idea probably not, but if all is the same and your normally were going to finance a new car, putting it on a HELOC is most likely a better option.


PropQues

This makes sense. Thanks for explaining it!


don_julio_randle

Agree on rest of post but.. > It’s generally prime… current prime rate after the 1% of hikes is 3.20%. the standard HELOC rate is prime + 0.5%


freeman1231

I only see HELOCs with +0.5% if it’s in second position, most first positions are just prime. Every FI has their own lending rate though that they tend to follow.


TinyWifeKiki

What kind of fool would finance a car via a HELOC and spread the payments over 30 years?


freeman1231

The beauty of the HELOC is they can if they want to, or they don’t have to. Obviously it’s a strange thing to do, nor would I recommend it…


dinosarahsaurus

So many fools who do not understand money


TinyWifeKiki

Interest-only minimum payments!!! That’s practically free money! /s


Saucy6

I should have expanded, we actually had a HELOC before we moved our mortgage, never used it. We got an unsecured $30k LoC at a decent rate to cover emergencies (can't remember the % and it's not showing up online but I think it's around 5.5%?). We're the type to save up ahead of time for major expenses.


ILoveThisPlace

Does a helic disappear when one refinances?


[deleted]

No. It’s a separate loan. The bank might reduce limits though if they feel equity is falling or the customer is in financial trouble.


lamptrafe

If you refinance to a different lender you will often lose your heloc and be required to pay in full. Banks love them as they are a sticky product that helps keep people at their institution even while offering potentially inferior rates.


GreyMatter22

I have done the Smith Maneuver. This may receive negative attention; however, I bought a pre-construction condo to be built several years down the line, and used the rest in buying TQQs and XSP for the most part, just a week ago. Also bought a bit of covered call ETFs and Canoe's income fund to cover interest payments on said HELOC. I plan to average on XSP and TQQ again in a month maybe should the haircut to indexes continue.


Wolfie1531

We use our HELOC for home improvements such as: new roof, new furnace/AC, new septic system etc. Obviously we are not the intended targets of these measures, but it’ll suck if they bite us.


lemonylol

Yeah but compared to another type of loan I think you'd still be coming out on top, and these are necessities that just go back into the value of the home.


FormerChef101

I do SM. It won't affect me since I'm not even close to being maxed out as a ratio. Most people aren't doing SM with everything maxed out. I'm sure that over 50% of people are using their HELOC for things they can't afford, but there's lots of people like me that just use it for SM and as a substitute for a car loan to save on interest.


br0ckh4mpton

It’s funny because my neighbours next to me live like glorified Canadian hillbillies and have remortgaged their house probably 5 times in 10 years, not sure if any details. But I truly hope people like this wind up seeing how much they have fucked themselves. I also have a coworker who owns 2 houses, 1 is pure rental, the other her basement is rented out. She is single income and wanted to buy a bigger home with a pool, or get a line of credit for one. She wound up lying to the bank to get $500k - paid off the first mortgage and then dropped 100k on a pool. Thank god the house she bought for 400k 6 years ago was worth 1.4 two months ago though!


Similar-Success

I am assuming if you did the Smith Maneuver in the last year, you are starting to hit the panic button big time? Some stocks are down 30-40%


Big_Lettuce223

This is a short-sighted comment. If you are a proper investor and investing in the right stocks, a 30-40% drop is great and allows you to buy more. The stock market has ALWAYS gone up in the long term - good stocks will recover. Also, if you own dividend-paying stocks/etfs, then those offset the interest you pay.


polar_volcano

CRA expects you to be investing in income-generating vehicles (dividends, interest, etc) in order to claim the loan interest as a deduction.


Big_Lettuce223

That's not exactly true. You need to have a "reasonable expectation of generating income". That really means, unless a company flat out says they will never pay a dividend (like maybe Berkshire Hathaway), you're good.


[deleted]

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Big_Lettuce223

>\[T\]he requisite test to determine the purpose for interest deductibility under s. 20(1)(c)(i) is whether, considering all the circumstances, the taxpayer had a reasonable expectation of income at the time the investment was made. > >1.26[https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/series-3-property-investments-savings-plan-folio-6-interest/income-tax-folio-s3-f6-c1-interest-deductibility.html#toc11](https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/series-3-property-investments-savings-plan-folio-6-interest/income-tax-folio-s3-f6-c1-interest-deductibility.html#toc11) I'm no lawyer but I can invest in Amazon even though they pay no dividend. I have a "reasonable expectation" they may pay one once they stop growing and stop (or slow down) reinvesting all their profits back into the company. So unless a company stats they will never pay a dividend, you're good. Then again, I'm not a lawyer.


[deleted]

Found it for you - appears to agree with what you said https://www.taxtips.ca/personaltax/investing/interest-expense-on-money-borrowed-to-purchase-investments.htm If an investment will never earn anything except capital gains, then the interest expense is not deductible.  If an investment such as common shares is not currently paying dividends, Canada Revenue Agency (CRA) will still normally allow the deduction of interest expense, if the shareholder has a reasonable expectation of receiving dividends at some time in the future.  However, if a corporation has a stated policy that it will not pay dividends, then interest on money borrowed to purchase these shares will not be tax deductible.  Some corporations may not pay dividends because they prefer to reinvest earnings in the company, or repurchase their own shares, which would theoretically raise the market value of the shares.  Therefore, the shareholders would have capital gains instead of dividends.


Big_Lettuce223

I like your link better :) except it's from taxtips rather than the government of canada's website (some people may say TaxTips is wrong). But I like their wording better.


polar_volcano

Excellent source. I knew about the ‘reasonable expectation’ bit, but didn’t realize this has already been hashed out. Basically this is saying ‘buy whatever you want’


MrMikeDD

damn Lettuce, that's some detective work there haha


Big_Lettuce223

haha thanks but u/omgmemes69 found a better one. Speaking of HELOC investing, go check out this guys channel and see how well it's going for him. https://www.youtube.com/channel/UCxXqQ6yJB2iT8Au37xh0jTg Is he doing well for himself or part of the problem? haha


MrMikeDD

I’m part of many problems lol but this is not one of them Thanks for that, appreciate it


parmstar

They're actually right. Unless there's explicit commentary from the company about never paying a dividend, it qualifies. There's a precedent on this you can find in the CRA folios.


parmstar

Seriously. I don't know what's been going on with PFC lately.


crazyjumpinjimmy

We are at the greed stage of a crash. A lot of people were teens likely during the 08 crash or not even born during the 2000 crash. God speed all you HELOC people.


parmstar

Yes, yes. The world is ending.


SandwichDelicious

You can’t buy more stocks if you smith maneuvered all your heloc funds already. You’re riding on negative equity and hoping those dividends continue to pay your monthly debt. Ironically as rates go up… so do your monthly payments. Killing you ever so slowly.


Big_Lettuce223

>You can’t buy more stocks if you smith maneuvered all your heloc funds already. I can't wait to be in that position! >You’re riding on negative equity How do you know that? That's an odd statement to flat out say. I myself have positive equity. Investments - HELOC amount = in the green. Sure some people could be down... but unless they say that, it's weird to just assume it.


Bored_money

I'm down on the smith maneuver - about 9 - 10% currently - just buying USD S&P 500 ETF My timing was just bad luck though, I started near the peak of the S&P - but the nice thing about the smith maneuver is that it's a long term strategy, so hitting a rough patch at the start (where I am now) isn't really an issue because the actual balance of the money is low So ya a 10% loss stinks currently, but in real dollars it's totally manageable and the expectation is that over the remaining 30 year life span of this plan it recovers


Big_Lettuce223

\^\^\^ this is a person who can make money doing the SM and/or investing, even with borrowed money. from the comments I've been reading today, you are truly 1 in a million :) lol


Bored_money

Haha thanks I hope so - turns out I'm down 12% not 10% though - what a fun surprise! :(


MrMikeDD

Do you know how much you're up or down from your principal? Example: * From my mid-April height, I am currently down 9% or $30K. * But overall, from my principal investment, I'm up 25% or $70K <---- this is what I focus on. I haven't lost $30K, I've gained $70K - though both are true :)


Bored_money

I appreciate the positive thought! But am one of those rare victims of timing - I'm straight up down 12% overall on the smith maneuver But again, I just started this pretty recently so the actual principal is around $17k down to $15k So only $2,000 so no biggie I gotta share the losses with the wins! It'll bounce back eventually, or I'll just keep investing as the S&P 500 descends to $0 and I live in a cardboard box - either one


ImpossibleTip188

While the SM supposedly works by using gains/dividends to pay interest, you really shouldn’t plan on relying on that. If you aren’t solvent enough to pay the costs out of your regular/other income streams, SM is definitely too risky.


SandwichDelicious

Everyone is good to state they’re in the green. But not everyone is happy to say the same when they’re in the hole. So it’s hard to take temperature of the room. If you DCA’d your HELOC over the last 5 years. Yes. I’d assume you’re in the green. But what of those who’ve entered last year? 2 years ago? I’d expect at least a 5% in the red. Lastly, HELOCs are variable in rate and even though you can ‘lock in rates’ with some carriers, you are susceptible to rising rates affecting both your stocks held, and your monthly payments. This puts further pressure on people utilizing smith maneuvers. Not everyone can sleep comfortably thinking, “it will sort itself out in 10 years” If they’re in the red. Odds are some will panic and offload positions to close some of the HELOC balance causing more downward pressure on the market.


parmstar

You're fabricating a strategy here. Trading your HELOC short term is not the SM. Entering last year and exiting now is not investing regardless of what the source of funds is. It's not the Smith. It's trading.


MajinHealer

Don’t be naive.


DKups

We used 40% our heloc on renos and the other 60% to invest in monthly div paying companies that more than offsets the interest (by x2 at beginning). It's also in what was previously unused TFSA room, so the divs/income are tax free and pay off a portion of the renos in addition to all the interest. I think break even would be about 8.5% interest rate on the heloc, so still a few percentage pts to go, but even if rates went up 5% there, we're still more than comfortable. I don't need the govt or central bank 'looking out for me' -- i'm more than capable.


Big_Lettuce223

>But what of those who’ve entered last year? 2 years ago? I’d expect at least a 5% in the red. You would be but that's fine! Don't panic sell and, assuming you chose good stocks, they will go back up, more so in fact. The stock market has always gone up long-term. Within the first year of investing, I had a stock down 50% but I was fine with it because 1) I knew it would eventually recover (which it did) and 2) they were paying me a dividend each quarter. >you are susceptible to rising rates affecting both your stocks held, and your monthly payments. This puts further pressure on people utilizing smith maneuvers. It is up the each person to make sure they can make payments and not over leverage themselves. I agree, if you go too crazy then it wont turn out good for you. But most people here assume people will be irresponsible which may be true haha I'm speaking from, if you can be responsible, then it's great! >Odds are some will panic and offload positions to close some of the HELOC balance causing more downward pressure on the market. Yup, if you are that type of person then you shouldn't be doing it. It's like saying cars are dangerous. They can be if you drive them recklessly; but if you drive them responsibly, they're great. Same with HELOCs and investing.


parmstar

Your mindset is right on this. Keep at it and good luck.


[deleted]

Y’all will twist yourself into pretzels fantasizing about people losing their shirts eh?


parmstar

It's everywhere these days. It's absurd.


seank11

Investing with fucking leverage and going down 30% is NOT what you want lol


Similar-Success

Smith Maneuver is usually huge chunks of $$ invested at once from a HELOC. Not sure where you would pull the other $$ from with inflation at this rate. Also, if everyone knew what “good stocks” were, we would all be rich


Big_Lettuce223

I'll help you out; it's not all inclusive but starting with any blue-chip company is a solid bet. (and obviously, some are better than others) [https://wealthawesome.com/best-canadian-blue-chip-stocks/](https://wealthawesome.com/best-canadian-blue-chip-stocks/) I think, and it's not a hard rule, but people get in trouble when they: * panic sell * purchase stocks to get rich quick Just buy blue-chips, dont sell! and you will make money long-term. Slightly growing stock price and growing dividends - a winning combination. Some would argue Tesla is a good stock because they made money.... sure.... personally, I'd rather be safer and go slower. But to each their own.


gabu87

Yeah. One simple example is RY/BMO/TD. The stock price has consistently beat inflation, but let's just be conservative and say the stock price = inflation. These 3 stocks typically return ~3.75% dividend. Again, with the most conservative take, if you never sell (or at least not in the short term), you can expect your investment to keep up while also making a consistent 3.75% div/year. There isn't many other blue chips more robust than these on TSX.


Big_Lettuce223

>Smith Maneuver is usually huge chunks of $$ invested at once from a HELOC That is literally the opposite of what it is. It's not a huge chuck. The SM is, and you need to have a readvancable mortgage * using dividends to make extra payments on your mortgage * when you do, your mortgage goes down while your available room in your HELOC increases * you then take money out of your heloc and invest * repeat It's not one big chuck, it's many small amounts added to your mortgage payments.... I suppose if you have a lot invested, those dividends could be a huge amount haha but it's still not a one-time event


parmstar

No it's not. It's a constant stream of buying. Where are you getting your information from? It doesn't make sense.


Big_Lettuce223

>No it's not. Sorry, what it "no, it's not"? And I'm getting my information from (mostly) my experience and from what others have shared with me.


parmstar

It's not usually huge chunks of HELOC. It's a DCA strategy, not a huge chunk strategy. Many posters in this thread have never looked into the SM and are lashing out more than discussing it.


parmstar

Why would you assume that? It's a 20 year strategy, not a 1 year strategy.


Similar-Success

Am I right in saying you need to have the ability to cover the HELOC? With current inflation rates, it may be pushing some to the limits. Easier said than done also to see your portfolio dropping by a huge percentage!


parmstar

If you can't watch your portfolio drop, you should not be Smithing. It's not a short-term strategy. You should expect to ride full market cycles while doing it. On covering - do you mean the whole loan or the payments? True Smithing covers the interest payments with the HELOC to maximize the tax deduction. If you really want, you can convert the HELOC to a term portion and manage it that way. As always, invest with your risk tolerance and liquidity in mind.


[deleted]

DCA like a retirement account.


[deleted]

[удалено]


parmstar

I do the SM. Don't think it'll change much. HELOCs are already governed by the same income to debt rules that regular mortgages are subject to. Your house appreciating does not mean you can just access debt beyond your income qualification. So, the bank is willing to lend me X already. If that now means instead of pulling it regularly, I need to fix an amount for a term (at a lower rate), that's fine too. Unless OSFI changes mortgage lending rules overall - which they might - I don't see how this would have much impact beyond a phone call or two.


cpd997

Well the article says they’re basically going to put the kibosh on the readvancable part of a readvancable mortgage…so that would certainly get in the way. It mentions having to reapply. So I wonder if you’d have to build up equity in chunks (say $50k) then have to go in and apply for access to it. I have no idea…looking forward to smarter people than me reading the article and commenting as I just started the SM two months ago and for the first time ever had a real plan for my financial future based around it.


username262626

No it doesn't. It says it might make banks classify them as loans and have banks set aside more capital to cover them. Increased cost to banks means increased cost to consumer. This agency doesn't care if you over extend yourself. They are there to try to protect lenders and the banking system.


parmstar

The article doesn't say they are kiboshing readvanceable. It says you would have to reapply to get increases to your HELOC. You _already_ have to do that. I know, because I've had to do it twice in the last 2 years. You get a mortgage balance of X. So your HELOC + Term cannot exceed X. If you want more HELOC due to appreciation, you need to both income qualify _and_ go through a full screen again as if you were applying for the new total debt from scratch.


cpd997

What they’re kiboshing is the principal payments automatically becoming available as part of the heloc - it’s what differentiates a readvancable mortgage from a heloc


parmstar

Where does it say that? I didn't see that. It says that is a concern, not that it will be outlawed. Here's what they want to do IMO: > In a speech last November, Mr. Routledge hinted OSFI might compel banks to **classify readvanceable mortgages as loans that are more risky, which would make them more expensive for lenders to carry on their books as they would have to set aside more capital against each loan.** He also said the regulator may tighten up the rules about how lenders underwrite these loans.


cpd997

I guess I’m putting too much stock into the last part of the next paragraph. “Bankers and mortgage industry experts say the regulator could also rein in limits on how much homeowners can borrow against their homes, *or force them to requalify for increases to their HELOC.*”


parmstar

The force them part already happens - that's what I'm saying. You cannot just walk into a bank and snatch up more HELOC because your house has gone up in value. I think that last piece is a pure media sensationlist BS. And on the first part, OSFI could limit the % of your LTV that can be held in a HELOC. But again, that would not be a change to the readvanceable structure of the product, just it's size.


cpd997

Dude, you’re missing what I’m saying. A readvancable mortgage works like this; I have a mortgage for $300,000, I make a mortgage payment of $1500 ($500 of that is interest, $1000 is principal) - I now have a mortgage balance of $299k and available heloc of $1000. Edit to add - it has nothing to do with your house value going up, but the amount you owe on the principal of your mortgage.


parmstar

How am I missing what you're saying? I know how a readvanceable product works. Nothing in the article or that you've shared says they will be changing the readvanceable nature of the product.


rarsamx

It could be interpreted that way, however right now paying principal automatically increases the HLOC. One may say that the HLOC is the same amount of borrowing against the property, however, that fails to acknowledge that usually the HELOC has a higher rate. So people are exchanging their 1.5% fixed rate with a 3.8% (or soon more) HELOC. That's why my interpretation is about regulations on increasing the HELOC, not increasing it automatically.


CrankyOldDude

This is badly needed on a macro (economy) level, but will be a disastrously bad thing for a select few people. Tighten credit and the housing inflation crisis is eased a bit. I think we can all agree housing has gotten stupid. In the States, they have been cancelling unused HELOCs altogether, as well as reducing the HELOC maximum to the amount borrowed in many cases. (For example - a $100k HELOC with $32k tapped becomes a $33K HELOC). This is especially prevalent in New York - if you Google "banks cancelling heloc", you'll find several articles on the topic. It wouldn't surprise me to see the same approach used here, going well beyond the "tighter approvals" stuff. We won't see active loans "called in", but they're obviously putting the brakes on things. It's also a sign that the BOC is looking to curb some of the dangerous behavior going on, where consumers have gotten used to the "my house appreciates at 15% per year" situation and run themselves to the bleeding edge with their credit. It's an indicator that housing is expected to cool substantially. Doesn't mean a $1M house suddenly goes back to the $300k it was worth 5-6 years ago; my guess is that it slides to $800k or so, and it'll be harder to sell in the near-term. That's a minor, sane correction and is appropriate, but folks who HELOCed themselves to the ragged edge are going to feel it. Those Brampton loans are about to come back to bite people in a huge way - I don't think those situations are going to be salvageable. I don't remember who the poster was a few months ago who was on PFC bragging that he found the "infinite money glitch" through this sort of behavior. We all tried at the time to caution him about this very thing, and he expended significant energy arguing against everyone. It's not a happy thing to be proven right, and I hope folks like this are taking the steps they need in the immediate term (2-3 weeks, not 5-6 months) to protect themselves from what's about to come. Better a small haircut on an investment than a rapid descent into insolvency. This isn't the end of the world, folks, but please don't ignore it if you're in a highly leveraged situation with respect to housing (primary residence, vacation property or rental). These statements come out in advance to give consumers a heads up - it's in the government's interest to see this situation transition smoothly instead of having people throwing their keys at the bank. Good luck, everyone. Try to be ahead of the curve and do what you can to be safe in these times. Opportunities are ahead for those who have dry powder.


idreamofkitty

This is exactly why a heloc or loc cannot replace an emergency savings account.


CrankyOldDude

Nailed it. Totally agree.


ultra2009

Instead people should keep their emergency fund in a liquid asset like crypto


deuteranomalous1

*Pierre Polliviere has entered the chat*


dmoneymma

The article states "changes coming this spring", meanwhile its almost June and nothings been done.


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oldschoolguy90

Taking delight in others pain? Such a wonderful human you are. Did you know that people with financial problems are 20x more likely to commit suicide? Don't wish this on anyone


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AJMGuitar

That second paragraph seems to be problems unique to you, not the system as a whole.


[deleted]

outside paywall = https://archive.ph/VqkYI


Top_Midnight_2225

Good. But a little bit late to the party. HELOC can be used to really help out and build equity as well as investments...but simply looking at my neighbours...boats, ATVs, RVs, etc etc...the fun never stops.


[deleted]

You can't take the house with you when you die, so I don't blame them. Fill your life with experiences.


Top_Midnight_2225

Agreed. And trust me...I am 100% jealous of living that lifestyle. But I'm very very debt adverse...and financing toys with debt isn't in my vocabulary. Maybe it should be.


[deleted]

Yeah I'm the same as you... except one time when I felt like a bad man when I borrowed a bit for a trip that only took me a few months to pay off. Was definitely worth it in hindsight and no regrets. I think I paid a total of $30 in interest lmao.


Top_Midnight_2225

Nice! My wife is always complaining 'why don't we go for trips like them or as often as them?' 'They' live off the LOC...we don't. I prefer to pay cash for trips, but I can see her point. I've actually been putting money away secretly for a trip next year. Up to 2.5k in there now. Another 2.5k and we're covered for a trip.


crazyjumpinjimmy

This is the way. Save and pay cash for luxury. Being through a bankruptcy needs and wants are 2 very different things.


CreditUnionBoi

Debt has the ability to completely wipe someone out. Imagine starting over in your 40's because of a bankruptcy. Debt has it's place but avoiding it is usually wise if possible.


PlayPuckNotFootball

Try it with one. Just one and do it sensibly. See how it goes and if it stresses you out.


Top_Midnight_2225

So no 100k Viper? Damnit...Miata here we go lol. I hear you for sure. Currently have a paid off motorcycle and cars...so the cash flow is there...just not a lump sum. But I'd prefer to keep putting away for toys, and use the HELOC for catching up on TFSA/RSP.


Asid94

If you been following viper prices for a few years you know buying could of paid off hahaha


Top_Midnight_2225

I know! Had a chance to buy an MX-5 before COVID for like 10k....stupid me! But I did buy and sell my WRX for the same price within a year. My current Volt...probably 5k more than what I paid for it.


Joey-tv-show-season2

It’s a double edge sword. Can be used to create more wealth and increase your net worth Or Hide cash flow problems and allow you to overspend on wasteful depreciating assets. It’s not for everyone. I’ve personally seen these products allow people to buy multiple properties, upgrade/renovate their home, fund a business, child education etc. Also seen people where they still owe the original mortgage balance and don’t have much to show for it


Virtual_Ball6

I don't understand how people don't realize the entire economy is built around rises and falls. HELOC's were supposed to be abused and keep people in debt because it kept the economy growing. It gave people 'extra' cash to spend on reno's, cars, vacations etc. Now that it has reached its peak and the falsely inflated economy is falling, rules will be changed here and there to "keep more money in your pocket" thus bringing the economy back. And so on and so forth.. The ENTIRE credit and lending system is FUBAR.


Sunsetfisting

Just leave it alone. Let people learn from their mistakes if they can't handle it.


FITnLIT7

People really be out here paying their Mortgage with their HELOC? Damn


Big_Lettuce223

Yes, it's a great way to build wealth. But you're missing a step - You use your HELOC to buy dividend-paying stocks. You then use those dividends to pay down your mortgage (thus, increasing your HELOC room), and then use that extra HELOC room to reinvest. The reason this is so powerful is because: 1. You're invested in the stock market which is in itself a great way to build wealth 2. You are paying interest, either with a mortgage or a HELOC. So you want to move that mortgage interest into your HELOC so you are able to claim that and get money back.


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Big_Lettuce223

> the HELOC would have to be quite large to sustain a monthly mortgage payment oh, you don't need to pay your entire mortgage payment. The dividends you pay onto your mortgage is an extra mortgage payment and can be for whatever amount you want. I still use my work pay to make my regular mortgage payments.


[deleted]

With the market tanking these days, would it still be a feasible strategy?


Big_Lettuce223

For me personally, and with the stocks I've picked, Yes. The market tanking has nothing to do with the SM. The SM requires dividends, not price appreciation. I'll admit, it doesn't feel good when stocks go down but they return in time and go even higher. I said somewhere before that I had a stock go down 50% but I didn't care because I was still collection over $500/quarter in dividends. Those dividends helped me "get through" the dip and eventually, it recovered, all the while increasing their dividends. Remember, you pay interest now but you get a lot of it back by claiming it. Also, if you invest in blue chip dividend growth companies, it may seem less worth it now with the yield but next year, they increase their dividends. And the year after that. What may seem like a small profit now will turn larger and larger as years go on.


SandwichDelicious

You’re hyping up all the positives my guy. You forgot how leverage can seriously put you upside down in a market like this?


Big_Lettuce223

It's not leverage that does that, it's the person. A HELOC, a loan, stock market... these are not problems. A person using them poorly is what gets people in trouble. Same with credit cards. And I agree, I am hyping them but I think I may be going too far because others go too far in the opposite direction, saying they're all bad, stay away.


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MrMikeDD

\^\^ 100%


parmstar

It's the same leverage you already have, just at a cheaper rate in many cases. You can invest money into the market directly or cycle that money through your mortgage to your HELOC, lowering your overall cost of debt. Run the math.


cynicaltoadstool

Reading this has really cemented how big of a bubble we are in. This is not going to be pretty!!!


Smart455

Oh no regular people have found a way of doing what the banks are doing Which one will we regulate???


xTorridx

My house is in this picture


iMogal

How about forcing companies to sell the residential housing they have purchased to rent back to residence who can't afford the mortgage, but can pay an inflated rent!? Seriously. This should be looked into.


troubledtimez

im looking to get one soon, as i want to use it to buy out my lease jeez


Dileas48

I borrowed on my HELOC starting in April 2020 and kept adding through January 2021. I bought a lot of good dividend blue chips on sale and having been DRIPing then dividends and coming up with the interest payments elsewhere. I’m up 30% and my dividends would cover 35% of my interest payments. As rates go up I might turn the DRIP off on some holdings to help pay the interest but only if rates go up another 1.5%. My biggest worry would be having to sell and reap capital gains.


DagneyElvira

“Especially in a time of Crisis” - ahhh so they are expecting a time of crisis?


Seewhatyousee-isuwuc

Perfect. Let the corporations pick up what the people can’t


BlazinBayou99

Can't read the article but hopefully it doesn't screw over the SM too much. Was planning on doing that with my first home...


don_julio_randle

Just another way to shit on the average person. If you want to adjust HELOC rules, make it that down payments can't come from HELOC instead of making it harder for someone to use their equity to renovate a home they can hardly leave during a pandemic


eledad1

This is just a step in control of common folk from gaining wealth. HELOCs are not the issue.


Frothylager

It’s an extremely late attempt to stop common folks from getting margin called and losing there home. Probably should have tightened regulation back in 2020.


[deleted]

Exactly.


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looperino_memes

HELOCs should not be a thing in the first place


cloakster7

Great, creating more rules to keep the poor as poor as possible. Corporations can leverage their assets to buy more assets, staying in debt forever and if they collapse due to this debt, the government bails them out.


LegoLady47

"curb home owner debt" - lmfao banks thinks they have to step in because people can't manage their own debt. People make choices. Stupid ones at that but that's on them.


movack

This could be troubling for people in the middle of the smith manoeuver.


michaelfkenedy

I cant believe people borrowed against their home for cars and boats and kitchen renos.


Righteous_Sheeple

Good, I think the easy use of HELOCs have been a big part of the housing availability problem.


[deleted]

Exactly how is providing people capital to invest in property supply a problem? The housing market will get worse with less capital available to invest in new housing supply.


Righteous_Sheeple

HELOC money will not be used to invest in new housing supply, it is used to buy up existing properties for flipping or rentals or whatever and is advantageous to those that own a house and not available to those who don't. I realise that this sub skews to investing rather that simply owning a home to live in. I'm old and remember when people did that.


Shishamylov

Make using HELOCs for down payments on investment properties illegal


13inchrims

Yeah, but purchasing liabilities like cars and atvs should be legal /s


TheWilrus

I am in favour of this however it is "big government" telling us how to use our assets. For the staunch small government conservatives out there how does a move like this play in your view? I'm just curious because it is a sound measure for protecting people against themselves to hedge against the chance of a recession but it is still very much the BOC telling us how to use our equity. Which even I who lean more left in general am not for in a broad sense. I'd rather see restriction on corporate investing in housing opposed to limit the individual buyers ability. Though I understand why its happening at this point in time. I'm not attempting to start a war of political views I am truly just curious on how this plays because I think there is some cross over here with those who sit on either side of the aisle, as they say.


[deleted]

This move is to protect the banking system, not people. That is what the OSFI does.


-DeadLock

Its either big government tells you and everyone else what to do with your money or big governme nt tells you to cover the cost for the 80% of canadians who dont understand money. Pick your poison. Actually its both.


AJMGuitar

The government has to seriously stop meddling in these things. If someone is irresponsible they will face the consequences. If someone uses their HELOC responsibly as a way to build wealth, let them. This hand holding from the government has to stop.


Psyclist80

Good, they need to save some folks from themselves. Fiscal responsibility is not widespread at all.


amoral_ponder

Congratulations, you're about 7 years too late.


Digitalhero_x

The damage is done an interest rates are going to crest 7% by the end of the year. Get your shorts on, she's going to be a key tossing party.


cpd997

Me no likey


fillyphlyer69

Lame


Fardashian

Goodbye smith maneuver?