Total Equity Plans

November 5, 2020

Many banks have all inclusive lending packages associated with mortgage lending – consumers are rarely fully advised on the consequences of using these packages.  Rather they are sold on the benefits – lower interest rates, flexible borrowing with no need for aditional approvals., atc.

Total equity plans may include low interest rate credit cards, loans and lines of credit that are tied in to a mortgage.  For example if your house is worth $600,000 and you have a mortgage of $400,000 – you have $200,000 of potential equity. When the bank registers the mortgage instead of simply registering for the $400,000 borrowed on the mortgage, they register for the full value of the house ($600,000). They tell you it’s to make future, low interest credit more easily available.

By registering the full value of the property the bank effectively blocks you from borrowing a subsequent mortgage from any other source. They can also lend other money to you that is fully secured by the property. This can include absolutely any lending by the bank.

There are risks to you by engaging in this type of borrowing. If the value of the propeorty were to go down, in an economic correction, the bank call call their loans. If you sell the house you would have to pay out the loans, credit cards, etc. So, the equity you may have thought you had to buy another property disappears. If you file a bankruptcy or a proposal the bank debt cannot be included because it is all secured by the property.