|STEP Mortgage: Is It Right for Your Needs?
If you’re researching mortgages, you will likely come across the Scotia Total Equity Plan (STEP) mortgage.
This is a readvanceable mortgage that allows you to automatically borrow up to 65% of your equity (80% if you lock in at least 15% to a fixed term mortgage).
It is similar to a home equity line of credit (HELOC), which is a credit line that is secured by the value of your house, less your mortgage.
On a regular HELOC, you would apply for a set amount, maybe $10,000 or $100,000, as long as the mortgage and the HELOC are less than 80% of your home’s value. The STEP gives you this amount automatically. You can set up a flat amount like other HELOCs, or you can have a line of credit that automatically increases as you pay down the principal on your mortgage.
The mortgage portion can have a mixture of terms and fixed and/or variable rates. For example, you can place a portion of the mortgage in a five-year fixed, some in a five-year variable and the remainder in a one-year fixed.
One benefit to this mortgage is that you can use the equity in your home as a tool for leveraged investing. For example, if you’ve recently paid down $5,000 of your principal, the credit line would increase by $5,000. You can then invest with this available credit and the interest would be tax deductible.
Since existing customers don’t get the best rates at renewal time, lenders give new clients better rates.
Having a STEP mortgage does make it difficult to transfer to another institution, but not impossible.
Guy Ward is a Mortgage Associate in Calgary, Alberta with TMG (The Mortgage Group Alberta).