Get money-saving tips in your inbox.

Stay on top of personal finance tips from our money experts!

News & Resources

Access Your Equity Now With a Readvanceable Mortgage

What if you had access to additional funds at great mortgage rates that you could borrow at your leisure? Sound like a dream? Believe it or not it may just be your reality as the money you put into your mortgage every month can not only work to pay off your home but can also provide you with the ability to contribute to any investment you wish. Who would’ve thunk it? You can actually make the equity you have built in your home work for you now, rather than later. How? With a readvanceable mortgage.

What is a Readvanceable Mortgage?

A readvanceable mortgage has two components: (a) the mortgage portion, and (b) a line of credit. Each mortgage payment that you make builds your line of credit as you pay off your mortgage.

How does a Readvanceable Mortgage Work?

Each payment you make towards your mortgage consists of a (a) principal payment, and (b) an interest payment. With a readvanceable mortgage, each payment you make towards the principal can be borrowed back.

For example: Let’s say that your payments are $600/month, where $400 goes towards interest, and $200 goes to the principal. Each payment you make would result in $200 towards your credit line.

Using your Readvanceable Mortgage to build an Investment Portfolio

While this type of mortgage is perfect for finally completing home renovations and saving for possible emergencies such as job loss or health care expenses, you can also use it to build your investment portfolio.

When you pay off an investment loan, the interest you pay then becomes tax-deductible. This means that you can grow your investment portfolio at the same time as paying off your mortgage, a round-about way to make your mortgage tax deductible.

Investment Loan: A loan taken out for the purpose of investing.

You can pay down your line of credit with the help of your tax credits, making more room to borrow and continue investing at the same time as paying down debt. This is referred to as The Smith Manoeuvre.

Homeowners have been taking out lines of credits, separate from their mortgages, to pay off debts, invest and renovate for years. Many Canadians may not realize the flexibility and benefits a readvanceable mortgage can provide. As Elisseos Iriotakis from Safebridge Financial states,

“A readvanceable mortgage provides consumers with the opportunity to use the equity they have built in their homes to make financial investments they may not otherwise have had the opportunity to make. In addition, if you are using the line of credit to invest in a “qualifying investment”, you can also enjoy additional tax refunds. We advise our clients to apply the tax refund towards their mortgage so they become mortgage free sooner. This is a great strategy, but it isn’t for everyone, and a proper risk profile must be completed before proceeding.”

Potential Disadvantages

Switching to a readvanceable mortgage may make more sense than taking out a regular, non tax deductible line of credit or refinancing your home; however, as with any type of credit loan, there are some potential disadvantages:

  • In order to qualify you need to have built up 20% of equity in your home.
  • Interest rates are not guaranteed for the life of the loan term.
  • Your credit score needs to be high (close to 700). You could risk gaining a tarnished credit score if you do not keep up with repayments. Therefore, it is important to treat this loan as you would a credit card.
  • You have to be confident that your property value will appreciate in order to benefit from the equity you build in your home.

The RATESDOTCA editorial team are experienced writers focused on sharing stories and bringing you the latest news in insurance and personal finance. Our goal is to provide Canadians with the information and resources they need to make better insurance and financial decisions.

Latest life insurance articles

10 Life insurance myths debunked
Life insurance is for someone older or has kids, right? Wrong. Let’s debunk life insurance myths and learn why everyone needs some form of coverage.
6 mins read
Do you need life insurance? A primer for Canadians
Life insurance isn’t a one-size-fits all solution. But if you have dependents, it can be an important financial safety net for those you love.
7 mins read
Why life insurance should be part of estate planning for new parents
Life insurance is one of the best ways new parents can protect their family and help loved ones in the event of your unexpected death.
5 mins read

Subscribe to our newsletter

Stay on top of our latest offers, relevant news and tips!

Thanks for joining!

You'll be hearing from us shortly - stay tuned.