Monday, May 16, 2011

New HELOC Rules in Canada Having an Impact

An anecdote.
So this week I helped a couple with $2 million worth of security get a $350,000 investment loan, and we needed personal lubricant to get the deal through. No more prime – now it’s a full point higher. No more simple loan with interest-only payments. Now it’s an amortized borrowing with principal repayments. And every year these people have to reprove that they qualify – even though they could pay the sucker off with 15 minutes’ notice.

You see the difference CMHC insurance makes? Bankers man up real fast. They learn again what risk means. And it scares the poop out of them.
Left unchecked, banks freewheeling with HELOCs can really come back to bite.

Talk about Equity Withdrawal
The view is spectacular, but what is even more amazing is the previous owner paid $1.5 million in 2000 and owed over $5 million at foreclosure. Wow ... over $3.5 million in equity withdrawal. As Jim the Realtor says, the collection agencies will probably be calling.
Debt is a drug.

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