A re-advanceable mortgage is a type of loan that combines a traditional mortgage with a home equity line of credit (HELOC). As you pay down the mortgage principal, the credit limit on the HELOC automatically increases, allowing you to borrow again using your home equity.
How It Works
Each mortgage payment reduces the principal. The same amount becomes available to borrow through the HELOC portion of the loan. This makes it easy to re-borrow without reapplying for credit, as long as you stay within the lender’s limits.
Benefits
- Flexibility: Access to credit as you repay your mortgage.
- Lower borrowing costs: HELOC rates are usually lower than credit cards or personal loans.
- Potential for investment: Some homeowners use this structure for strategies like the Smith Manoeuvre.
Risks
Because borrowing capacity grows as the mortgage shrinks, there is a risk of taking on too much debt. Interest rates on HELOCs are usually variable, meaning payments can increase if rates rise.
Final Thoughts
A re-advanceable mortgage offers flexibility and access to equity, but it requires discipline. Used wisely, it can support financial goals; used poorly, it can lead to growing debt.