When high school teacher Mark Murakami bought his Brampton home three years ago, he was encouraged by his bank to take out a home equity line of credit at the same time he arranged the mortgage. He was told applying later for a credit line would mean extra legal and processing fees, so it was easier to do it all up front.
Murakami hadn’t planned to get another loan on top of a mortgage, but not wanting to pay more for something he might want later, he took the mortgage representative’s advice. He ended up with a $68,600 line of credit, the maximum the bank would provide at the time.
The extra cost was a modest $70.50 on top of the more than $1,700 in legal and administration costs to set up the mortgage. At the time Murakami, wondered what the extra costs might be later on, but didn’t pursue it. His banker didn’t explain.
It turned out to be a smart decision, because if Murakami had waited to apply for a credit line secured by his home, he could have ended up paying up to $2,500 in fees for many of the same sorts of things he paid at the time he registered his mortgage.
Yet, most homeowners wouldn’t know about these fees or be able to make an effective comparison if they went shopping at the websites of the big banks. The information about the costs of taking out a home equity line of credit — known as a HELOC — including legal fees, administration costs and other charges is not there.
The websites of no-frills banks such as President’s Choice and ING Direct, also fail to mention fees. What you will find on the websites is descriptions of home equity lines of credit, how they are flexible and convenient, how the interest rate is determined and various payment options such as interest only and how they give you easy access to the equity in your home.
Customer service phone reps at the five big banks told a caller seeking details of how much it costs to make the application to make an appointment and come in to a branch.
The banks say it is hard to provide specific fee information online because not all fees apply to every applicant. Legal fees vary depending on whether the client chooses the bank’s lawyer or their own. Some fees may be waived, depending on the circumstances.
Jeff Schwartz, executive director at Consolidated Credit Counselling Services of Canada believes the information should be available in “black and white” so consumers can decide whether the cost of applying for these loans is worth it.
Here are the sorts of costs associated with a line of credit secured by your home. The Financial Consumer Agency of Canada, a federal consumer watchdog, has a list on its website.
1. Administration: This covers the costs of preparing the paper work to open a line of credit and can cost from $150 to $250. Many banks waive this fee.
2. Legal: You can use the bank’s in-house legal service or your own lawyer to register the loan against your property. It’s necessary because the loan is a legal contract with your property as security. This can cost from $500 to $1,500.
3. Appraisal: Banks want a professional assessment of your home’s value so they can offer the appropriate size of line of credit. Cost $150- $250.
4. Title search: This guarantees there’s no lien on the property and protects homeowners from fraud associated with the title. Cost $200-$500
5. Inactivity fees: The FCAC warns that you may incur maintenance, transaction and inactivity fees which vary with each financial institution.
6. Discharge fees: Some banks may charge a discharge fee. The CIBC just informed its customers that as of April 1, it will charge a $260 discharge fee for anyone closing a line of credit.
Farhaneh Haque, director of mortgage advice for TD Canada Trust says using TD’s in-house legal service can be cheaper. For example, the bank charges $500 as a flat fee, which includes such things as title search, but not title insurance.
Laura Parson, a Bank of Montreal mortgage sales manager based in Calgary, says her bank encourages customers to compare the fees it charges to those the customer can get elsewhere. “We like our clients to go and do their own homework, as far as pricing out what those costs would be,” she says.
Toronto real estate lawyer Morty Shapiro says people shouldn’t be afraid to negotiate some of the fees away.
“There is nothing wrong with asking: What can you do for me?”
Related: 12 fees to avoid
To be sure there are benefits to a credit line secured by your home. The interest rate is much lower than a personal loan because your house secures the loan. Many banks offer this loan at the prime rate plus 1 per cent and some like RBC are currently offering it at prime plus 0.5 per cent. The loans are flexible because you can get the money through branches, bank machines, telephone banking, online banking, mobile banking, debit purchase or cheques.
They’re big business for the banks. In 2011, the value of line of credit debt in Canada was $219 billion. That number has doubled since 2006 and equals about 12 per cent of all Canadian household debt. Even more alarming, The Bank of Canada warns the amount we owe in our lines of credit is growing at twice the rate of mortgage debt.
Murakami admits having access to such a large sum is useful, but remains puzzled about the fees. He feels that since you’ve already paid once when you get a mortgage, why should you have to pay again?
Why consumers love credit lines
• You can borrow up to 80 per cent of your home’s equity.
• You can use it whenever you like.
• Interest-only payments are seductive, but mask true cost of repayment.
• The rates are low because your house is the security.
• You can get at the money easily — online, cheques, ATMs