A reader of Les Affaires recently asked a question that many homeowners wonder about: when a mortgage is fully paid off, does the home equity line of credit automatically become a personal line of credit, which is much more expensive?
To answer this, Les Affaires turned to Jean-Sébastien Gilbert, mortgage broker at Multi-Prêts, who provided a key clarification.
The line of credit does not disappear when the mortgage is paid off
Contrary to what many people believe, a home equity line of credit is not tied to the mortgage balance, but rather to the property itself. As Jean-Sébastien Gilbert explains: “A home equity line of credit does not disappear when the mortgage is paid off. It is a product that is separate from the mortgage and secured by the home. It can remain active, and there is technically no obligation to repay it once your mortgage is fully paid.”
In other words, it is possible to own a fully paid-off home while still keeping an open home equity line of credit, typically at a much more favorable rate than a personal line of credit.
The home is the real collateral
What allows the line of credit to be maintained is the property itself. If the homeowner sells their house, the line of credit must be closed, and a new application will need to be made for the next residence. Jean-Sébastien also notes that it is possible to obtain a line of credit secured by investments, but with a lower loan-to-value ratio and, most often, a higher interest rate than a home equity line of credit.
A strategic tool for the future
According to Jean-Sébastien, a home equity line of credit can become a particularly useful tool, especially in retirement. It can act as a temporary buffer during more difficult periods in financial markets, without having to sell investments at an inopportune time. “We’ve just had very strong years in the stock market, but it is likely that at some point, the market will experience a correction. The line of credit can help support your lifestyle while waiting for part of the portfolio to recover. Keeping the line of credit open can become a strategic tool in managing withdrawals.”
A clear example of the broker’s role
Behind a simple question often lie decisions that have a real impact on personal finances. This is precisely where the support of a mortgage broker makes all the difference, helping Quebecers understand their options and make choices aligned with their goals.