Readvanceable Mortgage

A readvanceable mortgage is a mortgage combined with a line of credit that grows as you pay down principal. Each dollar of mortgage principal you repay generally becomes a dollar of available credit you can borrow again, so the total credit available to you stays roughly level until the lender's original limit is reached.

Lenders in Canada usually build this as a collateral mortgage registered for an amount above the money actually advanced. That larger registered charge is what allows the lender to re-advance funds without registering new security each time. The borrowing is typically split into a term portion, which behaves like an ordinary mortgage with scheduled payments, and a revolving portion, which behaves like a home equity line of credit.

How the credit grows

The revolving portion is normally capped at a set percentage of your home's value, and the mortgage plus the line together are capped at a combined loan-to-value limit set by the lender. As your amortizing balance falls, the revolving limit is increased by the same amount, up to that cap.

The term portion amortizes like a standard mortgage.
The revolving portion is usually interest-only, at a variable rate tied to prime rate.
Interest on the revolving portion is generally charged as simple interest, unlike the semi-annual compounding used on the mortgage portion.

Why borrowers use them

Homeowners draw on the re-advancing credit for renovations, investments, education, or debt consolidation. Because the line is secured by your home, its rate is typically lower than unsecured credit cards or personal loans. The trade-off is that the credit is secured against your property, and spending it increases the debt attached to your home.

Qualification, risk, and switching

Under OSFI's Guideline B-20, lenders are generally expected to assess a combined loan plan on the total credit limit rather than only the amount drawn, and the mortgage stress test applies to the term portion. An unused credit limit can therefore still affect how much you qualify to borrow.

Two practical cautions: variable-rate credit costs more when prime rate rises, and collateral charges are often slower and more expensive to move to another lender, which can limit your options at renewal. Ask how the discharge and switch process works before you sign.

Frequently asked questions

Is a readvanceable mortgage the same thing as a HELOC?

Not exactly. A home equity line of credit is a revolving credit product on its own. A readvanceable mortgage links a term mortgage with a revolving line and automatically raises the line's limit as the mortgage balance falls. Many lenders market this as a combined loan plan, so confirm the structure and limits in writing.

Can I switch a readvanceable mortgage to another lender?

It can be harder than switching a standard mortgage. Readvanceable mortgages are usually collateral charge mortgages, and some lenders will not accept a transfer of a collateral charge without a full refinance. That can mean legal fees and a new registration. Ask both lenders about discharge and switch costs first.

Does the unused credit limit affect how much I can borrow?

Often yes. Under OSFI's Guideline B-20 expectations, lenders assess combined loan plans using the total credit limit, not just the drawn balance. A large unused limit can reduce the mortgage you qualify for, so it is worth asking the lender how the full limit will be treated in your application.