I was talking to my neighbourhood banker today, and he let me know that as of Monday, August 20th, TD Bank (along with a few other banks, like RBC) will be changing the loan to value ratio for their home equity lines of credit (HELOCs). It’s currently at 80% LTV and it will be dropping to 65%.
For those of you who don’t know, a HELOC is a line of credit that is secured by the equity in your house. For instance, if you own a $500,000 home and have a $350,000 mortgage, your loan to value ratio is 60% (300,000 divided by 500,000). Using this example, with today’s 80% LTV you could get a line of credit for the difference of the 60% (your total equity) and 80% (maximum allowed by banks), which is 20% or $100,000. As of Monday, a 65% LTV means you would only be able to receive a 5% line of credit on your $500,000 house, which is just $25,000. So big changes are afoot.
Frankly, I’m not surprised by the change…but the amount is surprising. A little over a month ago, the federal government reduced its minimum LTV from 85% to 80%, along with the tightening of other mortgage rules. When this was announced, most banks were already at 80% even tough they were permitted to go to 85%. So it only makes sense that with the government tightening from 85% to 80%, the banks would drop below 80%. But a 15% drop is quite steep.
Again, the aim is to protect the consumers from themselves and a more conservative secured line of credit is a good way to do it. That been said, my banker did say there is an absolute rush of applications today, and he expects even more tomorrow.