How is a readvanceable mortgage different from a regular HELOC?

A standard HELOC has a fixed credit limit. A readvanceable mortgage automatically increases your available credit as you pay down your mortgage principal, so the borrowing room grows over time without a new application. It combines a mortgage and a HELOC into one linked product.

How much can I re-borrow on a readvanceable mortgage now?

Since late 2023, OSFI limits the re-advanceable portion to 65% of your home's value at federally regulated lenders, down from 80%. Any balance above 65% LTV must be amortizing and non-readvanceable, so that portion does not free up credit again as you pay it down.

Is the interest on a readvanceable mortgage tax-deductible?

Interest may be deductible only when the re-borrowed funds are used for eligible investment or business purposes, and the rules are specific and complex. Interest on funds used for personal spending is generally not deductible. Always confirm with a licensed tax professional before assuming any deduction applies.

What are the risks of a readvanceable mortgage?

The main risks are the temptation to over-borrow against your home, exposure to variable HELOC rates that can rise, and, if you use the credit for leveraged investing, the possibility of investment losses on borrowed money. Discipline and professional advice are essential.

Can I get a readvanceable mortgage with bad credit?

Usually not, since these are prime-lender products with standard qualification requirements. If your credit or income makes qualifying difficult, an equity-based home equity loan or second mortgage is often more accessible, because approval is based mainly on your equity rather than your credit score.

Which lenders offer readvanceable mortgages in Canada?

Several major banks offer combined mortgage-and-HELOC products under their own brand names. Availability, terms, and qualification vary, and all federally regulated lenders are now bound by the 65% re-borrowing cap, so comparing options through a mortgage advisor helps you find the right fit.

Readvanceable Mortgage in Canada

Paul Tsigaris
July 10, 2024

couple applying for readvanceable mortgage

Table of Contents

A readvanceable mortgage is one of the more flexible home-financing options available to Canadian homeowners, and it has grown in popularity for good reason. It blends a traditional mortgage with a line of credit that grows as you pay down principal. This guide explains how a readvanceable mortgage works, its benefits and risks, the recent rule change that affects how much you can re-borrow, and when an equity-based alternative may serve you better.

Short answer: A readvanceable mortgage combines a mortgage with a home equity line of credit, so as you pay down the mortgage principal, your available HELOC credit grows by the same amount, letting you re-borrow without a new application. Since late 2023, OSFI limits the re-borrowable portion to 65% of your home's value at federally regulated lenders. If you need to access equity above that, an equity-based home equity loan or second mortgage is often the better route.

What Is a Readvanceable Mortgage?

A readvanceable mortgage, also called a re-advanceable or combined loan plan, pairs a traditional mortgage with a home equity line of credit (HELOC). As you pay down your mortgage principal, the available credit on your HELOC increases, letting you re-borrow the funds without applying for a new loan. This gives you ongoing access to your home's equity and a high degree of flexibility.

In some cases, interest on the re-borrowed portion may be tax-deductible depending on how the funds are used, under a Canadian strategy known as the Smith Manoeuvre. This applies only in specific circumstances and the rules are complex, so always confirm your own situation with a licensed tax professional before relying on any deduction.

How a Readvanceable Mortgage Works

Setup

Two linked parts

A mortgage portion and a HELOC portion under one product.

Pay down

Principal drops

Each payment reduces your mortgage balance.

Limit grows

HELOC rises

Pay $1,000 of principal and your HELOC room grows about $1,000.

Re-borrow

Draw as needed

Use the credit for renovations, consolidation, or emergencies.

What changed: the 65% re-borrowing cap

Since late 2023, OSFI's Guideline B-20 limits the re-advanceable portion of these products to 65% of your home's value, down from 80%. Any lending above 65% LTV must now be amortizing and non-readvanceable, meaning the room above that line does not grow back as you pay it down. This applies to federally regulated lenders, so if you hold a readvanceable mortgage above 65% LTV, a portion of your principal payments now goes toward permanently reducing the balance rather than freeing up re-borrowable credit.

The Smith Manoeuvre

The Smith Manoeuvre is a tax strategy developed by Fraser Smith, a Vancouver Island financial planner, and introduced in his 2002 book. In general terms, it is a debt-conversion approach that repeatedly borrows home equity for investment purposes, so the interest on the investment borrowing may be tax-deductible while the original mortgage is paid down.

It is important to understand this is a leveraged-investing strategy. Borrowing against your home to invest carries real risk, including investment losses on money you still owe. It suits disciplined homeowners with stable finances and a long time horizon, and it is not right for everyone. Speak with a licensed financial advisor and tax professional before considering it. This article is general information only, not tax or investment advice.

Benefits of a Readvanceable Mortgage

Flexibility: re-borrow funds without a new application, useful when you anticipate future expenses or opportunities.
Cost savings: using the HELOC portion avoids the higher rates of credit cards or personal loans.
Debt management: a strong tool for consolidating debt, paying off high-interest balances and lowering your overall rate.
Investment access: equity can fund opportunities, though any leveraged investing carries risk and warrants professional advice.
Emergency funds: a built-in HELOC gives you access to cash for unexpected medical costs or major repairs.

Before You Choose One, Weigh These

Discipline required. Easy access to credit can tempt overspending. Use the funds deliberately and avoid piling on debt.

Variable rates. HELOC rates are usually variable and can rise with the market, so understand the terms and the impact of higher rates.

Fees and costs. Setup can involve appraisal, legal, and administrative fees. Ask for a full Cost of Credit Disclosure before committing.

When an Equity-Based Loan May Fit Better

Readvanceable mortgages are prime-lender products with standard qualification requirements, and the 65% re-borrowing cap now limits how much room they offer at the banks. If your credit or income makes qualifying difficult, or you need to access equity above 65% of your home's value, an equity-based home equity loan or second mortgage is often the more accessible route, because approval is based mainly on your equity rather than your credit score.

Need to access more equity?

If the bank's readvanceable limits or your credit are in the way, we can help.

Get Approved Now

or call 1-855-668-3074

The Bottom Line

A readvanceable mortgage can offer a blend of flexibility and financial security, combining a traditional mortgage with a HELOC to access your equity for debt management, opportunities, and unexpected costs. Just approach it with discipline, understand the 65% re-borrowing cap, and read the terms carefully. Research your options, consult a licensed mortgage advisor, and if your credit or income has made traditional financing difficult, our team specializes in equity-based solutions for homeowners the banks have turned away.