Readvanceable Mortgage

Ever wonder what would happen if we combined a mortgage with a line of credit? Wonder no more, because the answer is here: we’d get a readvanceable mortgage.

What is it? It's a mortgage we can borrow money against once we’ve paid down some of the principal. It’s like having instant access to a home equity line of credit (called “HELOC” by the cool kids), and all we have to do to increase the amount we can borrow is pay our mortgage.

Let’s say we’ve got ourselves a sweet little house and a readvanceable mortgage. Our original home loan amount was $350,000, and we’ve paid down about $15,000 of the principal so far. Under the terms of our mortgage, that means we can go ahead and re-borrow up to $15k for other purposes. Pretty sweet, right?

But there are drawbacks. For one, the interest rate on that re-borrowed money is going to be hecka higher than the interest rate on the original home loan amount. Like, if we’re paying 4.85% interest on the original loan, we could be looking at an interest rate of 9.55% on the re-borrowed amount. That’s some intense interest. And two, as long as we’re re-borrowing money from the same initial loan, the amount we owe on that loan isn’t going to go down. It’s like putting a dollar in our cookie jar every day…but then taking out $5 once a week for coffee. Sure, we’re putting money into the cookie fund, but it’s not going to accumulate very fast if we keep taking it back out again.