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By Ruth Saldanha |

Borrowing against real estate gets more difficult

Lenders have become more conservative, so borrowers should make sure they’re pre-approved for loans, says certified financial planner Jason Heath

Ruth Saldanha: A home equity line of credit or a HELOC is a loan that you take, giving your home as a collateral. Some of Canada's top HELOC lenders are now changing the way you get approved for a new mortgage with an open HELOC. What are the changes and what do they mean for you? To understand this, we have with us certified financial planner Jason Heath of Objective Financial Partners. Jason, thanks so much for joining us here today.

Jason Heath: Thanks for having me, Ruth.

Saldanha: The first thing is, what are these changes and what should we be concerned about?

Heath: Well, over the last couple of weeks, there have been some changes, particularly from TD, which is the largest home equity line of credit lender in Canada, whereby they are going to start looking not at the balance that somebody has on a home equity line of credit but the available credit they have when they are approving them for a mortgage. So, I guess, the intention there is to look at if they were to borrow against all of the credit that they had available to them, how much debt would they have, what would their payments be, and would they be able to qualify for and make the payments on a new mortgage that they are applying for. So, this is a bit of a change, I think, to what we've seen in the past. But it goes along with some of the changes we've seen over the last couple of years in lending here in Canada. I think across the board lenders are becoming more conservative and borrowers need to be aware of the fact that it maybe more difficult to borrow against real estate.

Saldanha: For borrowers in particular, especially someone looking for a second mortgage, what kind of adjustments should they make to be able to qualify under these for a new mortgage?

Heath: Well, a couple of different things. I think that when somebody is in the market for a new home, it's always advisable to make sure that you are preapproved, and you have a sense of how much you can borrow in the first place. But I think now more so than ever people maybe surprised that there are impediments like having a line of credit even if the balance is zero that they may even need to lower the limits on the lines of credit in order to be able to qualify for the mortgage they want to qualify for. So, really reinforces for me the fact that people need to be getting out there and speaking to a mortgage specialist or a mortgage broker earlier than in the past.

Saldanha: Thank you so much for joining us with your perspectives, Jason.

Heath: My pleasure, Ruth.

Saldanha: For Morningstar.ca, I'm Ruth Saldanha.

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