“After a mortgage loan has been completely paid off, is it possible to leave the mortgage margin open and continue to use it to finance other future work?” asks a reader.
When granting a mortgage, the financial institution takes a lien on the property as collateral.
Thus, if the borrower does not respect his commitments, he can seize the house, sell it and recover his money.
The receipt
When the loan is fully repaid, the link does not automatically disappear. If he wishes to break it, the borrower must obtain a mortgage discharge.
This is a document drawn up by a notary by which the financial institution declares that the borrower has fulfilled all his obligations. The link is then permanently severed.
How much does it cost?
Notary fees for drafting a discharge vary between $300 and $600 depending on the complexity of the file.
In addition, there are additional costs of approximately $150 for publication in the Quebec Land Register.
Before requesting a release
However, keeping the link with your financial institution has many advantages that should be assessed before ending it. Here are a few.
- The mortgage line costs nothing, as long as it is not used.
- It is possible to use the margin at your convenience for all types of projects, whether for renovations, travel, the purchase of shares, investments, etc.
- To use the margin, no need to go to the notary.
- The interest rate of a home equity loan is lower than that of a personal loan. For example, for a loan of $15,000 amortized over a period of 5 years, the savings made at maturity with the margin compared to a personal loan would currently be more than $3,000. It’s not nothing!
The inconvenients
On the downside, let’s mention:
- The interest rate of the margin is linked to the market, that is to the key rate of the Bank of Canada. Consequence: the monthly payments may vary according to the current rate.
- Given the ease with which it is possible to use the margin, some will tend to overspend. Since the home equity line of credit can be up to 65% of the value of the house, this represents a significant sum. For example, for a $300,000 home, the margin would be $195,000. In order to avoid over-indebtedness, expenses should be managed wisely.
Conclusion
There are many more advantages than disadvantages to keeping your home equity line of credit.
On the one hand, it makes it possible to carry out projects, including the purchase of a rental property, and on the other hand, it makes it possible to deal with unforeseen events.
In short, putting an end to this opportunity that costs nothing… it’s a good thing to think about!
Advice
- Is it a want or a need? The judicious use of a line of credit is vital.
- Ensure regular repayment. The goal is to avoid the accumulation of debts.
- Strategic use of your margin. This may allow you to consolidate other high-interest debt.