The following is an article authored by Dave Tout, Mortgage Broker with Dominion Lending Centers in Vancouver, BC and compares popular re-advanceable mortgage products such as the FirstLine Mortgage – Matrix Mortgage Suite, the Scotia Total Equity Plan (STEP) and the National Bank All-In-One.
Biography: Dave was educated at Simon Fraser University & the City University of Seattle. He has a BA and an MBA. If you live in British Columbia, check out Dave’s website where you can fill out mortgage applications on-line.
The key component missing from many mortgage products available today that would make them attractive options for real estate investors is a re-advanceable home equity line of credit (HELOC) portion.
These more advanced products make money available on a HELOC as soon as a payment is made towards the amount owing on the mortgage.
This core function enables investors to put this money towards the down payment on their next property without having to re-apply to use the built-up equity in the property.
The readvanceable HELOC products typically enable an investor to finance the down payment for about three properties, depending on the amount of equity built up in their principal residence.
There are a number of banks that offer products that can consist of fixed rate and/or variable rate and HELOC portions, but three offer superior products of this nature. These include National Bank’s All-In-One, Scotiabank’s STEP (Scotia Total Equity Plan) and FirstLine Mortgages’ (owned by CIBC) Matrix Mortgage Suite products.
But if you plan to use the credit for both personal and investment purposes, the All-In-One or STEP products are ideal because they make tracking tax-deductible investment interest easier thanks to the multiple account components contained within these two offerings.
This tracking component is only essential, however, when the HELOC funds are being used for both personal (such as a dream vacation or post-secondary school education) and investment use. While it is possible to track mixed-use portions using the Matrix product, all calculations must be completed manually, which can be quite onerous.
Comparing three top readvanceable products
The Matrix mortgage is the most basic of the three products listed above. It consists of only two components – a mortgage portion where you can choose the term (eg, three-year, five-year, etc), amortization (ie, payments spread out over a duration up to 35 years) and type (ie, fixed or variable), and a HELOC component.
Up to 80% of the equity built up in the property minus what you owe on your mortgage can be accessed through the HELOC portion. As with any readvanceable product, as the mortgage is paid down, the HELOC increases without having to re-apply to use the equity in the property. And you only pay interest on the portion of the HELOC that is being used.
The main set-back to this product is that if you use the HELOC for both personal and investment purposes, you must manually track your spending, since the interest on your investment portion can be tax deductible, whereas your personal use funds are not.
One major bonus this product has is that you can also get a Matrix mortgage on an investment property in addition to the initial one on your principal residence if you have at least 20% equity in the investment property. It’s important to note, however, that the maximum number of Matrix mortgages is capped at two – one for your principal residence and one for an investment property.
The STEP product can do everything the Matrix can do and more as it can include up to three components on the mortgage side and three for the HELOC. The mortgage portion can have a mixture of terms, and fixed and/or variable rates. For example, you can place a portion of the mortgage in a five-year fixed, some in a five-year variable, and the remainder in a one-year fixed. And the HELOC can also be split into three portions to track both personal and investment expenditures separately – where all three could be personal, all three could be for investment purposes, or any other possible mix between the two uses to a maximum of three different components.
Like the Matrix mortgage, the STEP product can also be used on your investment property as well as initially on your principal residence. There is, however, no cap on the number of properties for which you can have a STEP mortgage as long as you qualify.
The All-In-One mortgage is the most advanced of the three offerings as it can be split into up to 99 components, although few people require this many options.
The major bonus to this product is that it also has a bank account component. As such, your paycheque goes directly into an account and is used to automatically pay down your mortgage, which saves interest. Money can also be set aside in a sub-account for personal use. And because you can have multiple sub-accounts, you can easily have one sub-account for each investment property.
The downfall with this product, however, is that, unlike the Matrix or STEP offerings, you can’t have an All-In-One on your investment property – just your principal residence. While you can use the HELOC on your personal residence for down payments on investment properties, having the option to also have a readvanceable portion attached to an investment property can give you automatic access to equity in that investment property.
Comparing three top re-advanceable products
| FirstLine Mortgage – Matrix Mortgage Suite | Scotia Total Equity Plan (STEP) | National Bank All-In-One |
|---|---|---|
| Benefits • You can also get a Matrix mortgage on an investment property in addition to the initial one on your principal residence if you have at least 20% equity in the investment property | Benefits • Easy to track personal use versus investment use for investment property interest tax-deduction purposes • Both the mortgage and HELOC components can be broken up into three portion, allowing for greater flexibility • No cap on the amount of STEP mortgages you can obtain as long as you qualify (ie, principal residence and multiple investment properties) | Benefits • Most advanced of the three offerings as it can be split into up to 99 components • Offers a bank account component that can be broken into sub-accounts to thoroughly track all properties separately • Easy to track personal use versus investment use for investment property interest tax-deduction purposes |
| Considerations • Tracking of personal use versus investment use must be completed manually for investment property interest tax-deduction purposes • Basic product that consists of only two components – a mortgage portion where you can choose the term, amortization and mortgage type, and a HELOC • Maximum number of Matrix mortgages is capped at two – one for your principal residence and one for an investment property • No bank account option | Considerations • No bank account option | Considerations • Can only use this product on your personal residence |
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