A readvanceable mortgage is a two-in-one product that combines a traditional mortgage with a secured line of credit, also known as a HELOC. As you pay down the principal on your mortgage, the limit on your secured line of credit automatically increases by the same amount, allowing you to continuously unlock equity without requalifying.
In Canada, you can generally refinance a property up to a maximum of 80% of its value, which includes any existing mortgages plus new funds. For example, on a $1.2 million home with a $780,000 first mortgage, you could access up to $180,000 in additional equity.
No, buying a rental entirely with your line of credit is generally not recommended because it ties a large chunk of your capital to one asset and the interest rate on a line of credit is typically higher than a mortgage. Instead, use the HELOC for the down payment, closing costs, and renovations, and place a new mortgage on the rental property for the remaining balance.
The risks are manageable if you plan strategically. You only pay interest on the amount you actually use, the risk of the bank calling the loan is very low if you make payments on time, and most lenders allow you to lock all or a portion of your balance into a fixed-rate mortgage to hedge against rising interest rates.
You should set it up proactively when you are in a strong financial position, before you need the money. Do not wait until you are between jobs, have switched to self-employment, or have added multiple properties to your portfolio, as tighter debt ratios may limit your ability to qualify.
