Product Spotlight: Scotia STEP

Otherwise known as The Total Equity Plan, Scotiabank has a product that allows their clients to split the mortgage into up to three different categories.  With a traditional mortgage, you typically have one rate, fixed or variable, that remains the same throughout the course of the term. With the STEP mortgage, you could have part of it as a line of credit, part of it as variable, and part of it as a credit card. They approve you at what’s called a “global limit”, and that amount is re-advance-able at any time. In many ways, this mortgage product is what one might refer to as a “HELOC” (Home Equity Line of Credit.)

What’s the benefit of structuring a mortgage this way? First, you are diversifying your interest risk. If you work with a financial planner, you will hear them discuss a “diversified portfolio” which spreads the risk out evenly amongst a variety of investments; the goal is to mitigate risk by avoiding having “all of your eggs in one basket”. The same works with the STEP program; you can take advantage of low variable rates AND the safety of a fixed rate portion. Secondly, because a global limit is set up at the outset, you have access to your home equity at any time. This can be extremely convenient for investing purposes since you don’t have to re-apply for additional credit. Borrowing to invest from the line of credit portion can be a great way to build up a healthy no-registered portfolio.

Things to consider: you need at least a 20% down payment. You cannot be a temporary resident of Canada. Your beacon score should be right up around the 700 mark. If you want to invest with some of your home equity, make sure you do it with a professional.