What is a Readvanceable Mortgage?
A readvanceable mortgage lets you reborrow the principal that you pay off.
It has two parts:
- A mortgage portion
- A line of credit (LOC) portion
As you make your regular mortgage payments, the lender increases your LOC by the amount of principal you pay off. Some lenders do this automatically, and some make you manually request to have the LOC limit increased.
A Quick Example
Suppose you have a $100,000 readvanceable mortgage and your monthly payment is $610 (assuming 5.5% interest and a 25-year amortization).
Of this $610, let’s suppose $445 is interest and $165 is principal.
With a readvanceable mortgage, as soon as you make your payment you can then borrow back whatever principal you just paid. If you made the $610 payment above, for example, the lender would increase your LOC limit by $165.
The more payments you make, the more you can borrow off your credit line. The best part is, you don’t have to reapply for any additional credit (assuming you have an automatically readvanceable mortgage). Moreover, your growing credit line will have a very reasonable interest rate (often prime + 0.50%, give or take 1/2 percent).
Readvanceable mortgages are ideal for disciplined homeowners who need a growing source of funds for:
- Unexpected emergencies
- The Smith Manoeuvre
- Unexpected job loss
- Business expenses
- Health care expenses
- Education costs
There are lots of readvanceable mortgages to choose from. intelliMortgage’s Mortgage Builder lets you compare readvanceable mortgage options from all major lenders.
Have more questions? Email us any time for answers.