Non-bank lender CMLS launches HELOC

ByRichard C. Sloan

Dec 15, 2021

For those with more than 20% equity, HELOCs are pretty much the most popular product in the prime mortgage market. Over 2 million Canadians have one.

And now, those who buy a HELOC (Home Equity Line of Credit) have another option, this time from the non-bank lender CMLS.

CMLS joins Scotiabank, Manulife Bank, B2B Bank, MCAP, Optimum and soon TD Canada Trust as National Broker Lenders with a premier HELOC. (There are also countless provincial lenders with HELOCs, like Meridian Credit Union.)

“A HELOC has been the most requested product in every broker survey we’ve conducted over the past three years,” said Dan Putnam, senior vice president, residential mortgages. “So we are delighted to have finally ticked that box.”

The CMLS Domicile Line is a HELOC plus mortgage (two separate charges on the title). This is the first iteration of the product, according to the company. It provides for future upgrades including uninsured mortgage portion, one-time charge, and full revolving.

“We are looking to act quickly and have set Q2 2022 as an aggressive but realistic target for the next evolution. [of the product]Said Sam Rizzo, Broker Sales Manager, Eastern Canada, Business Development, Residential Mortgages.

The company’s Home Line is backed by a major third-party balance sheet lender (eg, a bank), but the company has not been able to disclose who.

Here is a brief overview of the strengths and weaknesses of the version just launched.

Advantages

  • Unlike the HELOCs of the big banks, CMLS offers a low insurable rate on the mortgage portion
  • The HELOC minimum payment is interest free
  • Borrowers can transfer other debts into HELOC in order to lower their debt ratio and help them qualify
  • CMLS covers the transfer costs of the mortgage part (if the incoming mortgage is an ancillary charge, it slightly reduces the broker’s remuneration to offset the additional expense)
  • The company has some of the most flexible grandfather rules in the Canadian mortgage market, meaning it will give borrowers an insurable mortgage despite having originally a $ 1 million home, depreciation over 30 years, previous refinancing, etc., as long as their mortgage complied with federal rules at the time of origin
  • HELOC funds are available by phone or online (funds can be transferred to the borrower’s bank account the next business day)

The inconvenients

  • The HELOC is revolving but not adjustable, which means that the credit available for the LOC does not increase when you pay off the mortgage portion.
  • There are two separate applications
  • There are two separate fees (with additional registration and evaluation fees for the second HELOC fee; partially refunded for status brokers)
  • The HELOC cannot exceed 50% of the total amount approved (for example, if you have an approved borrowing limit of $ 600,000, the LOC portion cannot exceed $ 300,000; this is not a big drawback being given that the average Canadian with a HELOC only uses 28% of their available limit, according to mortgage professionals in Canada)
  • The maximum property value is $ 1 million, unless the mortgage meets grandfathering requirements (for example, the house was purchased for less than $ 1 million and / or was in compliance with the rules. insurance when taking out the mortgage)
  • The broker’s compensation on the HELOC is based on an average balance of 60 days (many lenders pay over the approved limit)
  • The maximum amortization is 25 years on the mortgage part (since it is insurable), while banks allow up to 30 years
  • Unlike bank HELOCs and some credit unions, this one is not available on rentals not occupied by the owner.

Like other lenders, CMLS’s HELOC is qualified using the greater of: (A) the benchmark rate (currently 5.25%) or (B) the contract rate (currently prime + 0.50%) plus 200 basis points. At launch, it will be available in Alberta, British Columbia and Ontario.

The verdict

“Every widening of consumer choice is a benefit,” says seasoned broker Ron Butler of the new offering, “especially when renewal rates on the futures portion will always be competitive in a business like CMLS.”

The biggest gripe many will have with this thing is the lack of reviewability. Customers love this feature because it helps them create cash flow with every mortgage payment. This is normal in all major banks.

That said, the CMLS home line has its niche. If you don’t care about increasing your borrowing limit, you can get as low as 2.69%. Most banks are at 2.79% and above. Is ~ $ 470 of interest savings per $ 100,000 of mortgage worth the product limits? For those who have high debt ratios and / or don’t need future cash flow, this may be the case.

CMLS of course has strong competition in the brokerage business. TD will be joining the fun in January and First National is also reportedly working on a HELOC. However, the firm’s fiercest head-to-head competition is probably Manulife.

His Manulife One is currently cheaper in terms of rates and offers interest compensation with a built-in chequing account. But Manulife does not allow you to carry over other debt on the line of credit in an attempt to reduce your debt ratios. A HELOC is not of much help if you cannot benefit from it.


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