HELOC

[MichaelGrekul]

I have been informed by a client of mine that has an existing HELOC with BMO that he has received notice that BMO is changing his HELOC from floating at prime rate to floating at prime plus 2%.

Has anyone else heard of this practice and is anyone aware that the financial institutions have the right to change the rules and rates like this.

Obviously, this is of great concern to any investor using HELOC funds for investment and it dramatically affects the cashflow of investment property.

 

[invst4profit]

I have not heard of that however your client may be confusing existing loans with new loans. I know any new HELOCs are higher.

 

[TerryF]

QUOTE (MichaelGrekul @ Feb 11 2009, 10:17 AM) I have been informed by a client of mine that has an existing HELOC with BMO that he has received notice that BMO is changing his HELOC from floating at prime rate to floating at prime plus 2%.

Has anyone else heard of this practice and is anyone aware that the financial institutions have the right to change the rules and rates like this.

Obviously, this is of great concern to any investor using HELOC funds for investment and it dramatically affects the cashflow of investment property.

Interesting,,,,,,, what bank is this?

Both banks that hold our Helocs - FLF and MCAP - say they will not be changing the original terms of the HELOCs. We also have a TD unsecured LOC with a guaranteed interest rate (prime + 1.25%) that also will not be changed unless we rewrite it somehow (eg. ask for higher limit, add spouse to account,etc.)

However, SOME unsecured LOC`s may be changed. Depends on the fine print when you first got the LOC. LOCs obtained many years ago did not have fine print that allowed for the interest rate terms to be changed.

 

[Thomas Beyer]

QUOTE (MichaelGrekul @ Feb 11 2009, 10:17 AM)
I have been informed by a client of mine that has an existing HELOC with BMO that he has received notice that BMO is changing his HELOC from floating at prime rate to floating at prime plus 2%.



Has anyone else heard of this practice and is anyone aware that the financial institutions have the right to change the rules and rates like this.


most LOCs are callable at any time .. and with prime so low banks grab money where they can .. so it is

a) legal, and

b) expected !



Get a 2nd quote or a 3rd .. nothing special about BMO .. it is just money they are making available .. so go for the lowest rate ! Most banks still do prime + 1 for LOCs ..



Related post on a more difficult lending environment:




Obviously, this is of great concern to any investor using HELOC funds for investment and it dramatically affects the cashflow of investment property.


Why ? the cash-flow of the property should cover the LOC of 4-5%. If not it is too poor a property (or you are too levered) !

 

[seanverret]

Are you sure it`s their HELOCs or just their unsecured LOCs? I know they did that to my unsecured LOCs.

 

[kboughen]

QUOTE (seanverret @ Feb 11 2009, 07:18 PM) Are you sure it`s their HELOCs or just their unsecured LOCs? I know they did that to my unsecured LOCs.
I have heard that BMO and Manulife have sent out letters indicating they will be increasing the interest rates on existing secured lines of credit to Prime +, even though they have only been charging Prime on the balance until now. I do not believe they are changing the rules, I believe they are exercising their rights contained within the terms of the SLOC. If you read the fine print, it may say something to the effect that their rate floats with Prime, but not necessary equal to Prime and they are within their rights to charge whatever they want as long as it is relative to Prime.

When placing a SLOC, I use Lenders that specifically state the Rate is equal to CIBC Prime, TD Prime, RBC Prime etc.

 

[Thomas Beyer]

QUOTE (kboughen @ Feb 11 2009, 05:45 PM) When placing a SLOC, I use Lenders that specifically state the Rate is equal to CIBC Prime, TD Prime, RBC Prime etc.
indeed .. it helps to shop around .. or use a good mortgage broker .. money is money .. the ultimate commodity .. like gasoline .. or even more generic !

do mortgage broker get commission on LOCs .. or only on mortgages placed ? i.e. is their a thing called a "LOC broker" ?

 

[kboughen]

QUOTE (thomasbeyer2000 @ Feb 11 2009, 08:07 PM) do mortgage broker get commission on LOCs .. or only on mortgages placed ? i.e. is their a thing called a "LOC broker" ?
As an Independent Mortgage Broker I have access to these, they do not pay a lot because they are fully open instruments (The bank has no commitment as to how long they will be collecting from the client). If you place a SLOC for future use, and the client doesn`t draw on it for three months you may not get paid at all. However, a good Broker will suggest it and facilitate it when it is the right solution for the client.

 

[mark186]

I can`t figure out how to add an attachment to a post otherwise I would display the same letter I got from BMO. I have not yet checked if this follows the original agreement I made with them but the letter states rates on LOC`s from before October of `08 are going up one percentage point. This is because "the cost of borrowing has risen dramatically for all banks around the world and BMO is no exception." I have two LOC`s with them - this came in the monthly statement on an unsecured LOC, another HELOC I have has not been subject to the increase (yet).

Ultimately I decided to not get too worked up about it as it doesn`t substantially affect my cashflow - I was paying the same rate last fall before the recent rate cuts but it does raise the question if the bank would give me a break if rates were going the other way. For example, I remember getting a mortgage in `90 for 11.75%. If rates went up that high again would they say "gee, this must be costing you a lot - how about we give you a break?"

 

[Conrad5]

I had a similar letter from CIBC today. They will be increasing the interest by 1% on the LOC from April 2009.

 

[RArora]

Has anyone heard if Scotiabank is doing this too! I hope not! I thought the rate was prime till the time you pay it off/close the account.

 

[21krunner]

Yes, TD recently sent me a note also indicating my new unsecured rate would be prime + 3.25 effective sometime in March. As I don`t use the facility much I am not sure how much of a jump that is at this moment. I think it might be an uplift of 75 basis points. More notably from my perspective there is to be now an inactivity charge ($39 I think) if the LOC is unused for a full year. Hardly catastrophic.... but I will likely make a small artifical transaction periodically to avoid the cost while maintaining the line.

 

[RArora]

I just wrote to my banker at Scotiabank and he assures me that the HELOC won`t change the rate since it was set up last yr at Prime. However the unsecured LOC can have a rate change...

 

[TerryKruse]

TD recently rescinded the inactivity fee.

I spoke to TD a month ago to see about putting an unsecured line of credit into our secured HELOC (lower interest rates and payments) but rewriting the HELOC would change our interest rate from prime + 1 to their newest rate.

We were told that if we didn`t change anything then the rates stay the same.

Cheers, Terry