What is a Scotia Total Equity Plan (STEP)?
A Scotia Total Equity Plan (STEP) offered by Scotiabank is a mortgage solution that allows a homeowner to have a mortgage plus a secured line of credit (HELOC) on an individual home.
Most people who purchase homes will take out an individual mortgage to purchase or refinance their home. If they want a line of credit, they will need to refinance their property and set up a HELOC as a second lien on their property from another lender. A STEP lets you avoid refinancing.
An example of a STEP is below:
STEP Global Limit: $400,000
Mortgage Component: $300,000
Line of Credit Component: $100,000
Before going any further, feel free to use the Scotiabank Website for full information on the STEP or as a reference.
STEP Flexibility
Unlike traditional mortgage plans, STEPs allow borrowers to hold a mortgage and a secured line of credit under one combined plan.
As you pay down your mortgage component, you can then re-advance mortgage components or a line of credit from the plan. This can sound confusing at first. However, think of it using this analogy - imagine you have a glass of water that is 80% full. If you drink the water down to 10%, you'll then be able to fill the water back up to 80%.
This is the same as the STEP. Suppose you take out 80% of the equity from your home. After you've paid that mortgage down to 10%, 20%, etc., you'll then be able to borrow the money again up to 80% of your home value.
You might be wondering, is it that easy? Yes and no. If you keep your credit score up and are in good standing with Scotiabank, then it is that easy. You walk into your local branch, ask them to restructure your STEP, set a new mortgage component, and add or increase a line of credit.
Homeowners can tap into this home equity for various purposes without the need for extensive paperwork or approval processes.
Access Home Equity Without Refinancing
One of STEP's standout features is its ability to introduce access to home equity without the traditional hassles associated with refinancing.
In conventional mortgage scenarios, adjusting the terms or obtaining additional financing requires a clunky and time-consuming refinancing process. However, STEP streamlines this experience, allowing homeowners to make changes or add a new mortgage component without undergoing the complexities of refinancing.
This streamlined approach saves homeowners valuable time and money by not having to go through the refinance process.
Pros and Cons of a STEP
As with any financial product, it's crucial to evaluate the pros and cons of the Scotia Total Equity Plan.
Pros:
Flexibility and Control: The ability to manage both a mortgage and a line of credit provides unparalleled flexibility and control over one's financial strategy.
Efficiency in Adjustments: The streamlined process of introducing a new mortgage component without refinancing saves time and simplifies financial adjustments.
Versatility in Usage: The line of credit component allows homeowners to use their equity for various purposes, from home improvements to education expenses.
Cons:
Interest Rate Fluctuations: The interest rates associated with the line of credit component are typically variable, exposing borrowers to potential fluctuations in their borrowing costs.
Accumulation of Debt: The ease of accessing a line of credit may tempt some homeowners to accumulate debt without proper financial discipline, necessitating careful management.
Higher Interest Rate: The STEP comes with slightly higher interest rates than standalone mortgages.
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TL;DR (Too long; didn't read)
Dual Flexibility: STEP uniquely combines a mortgage and a line of credit, offering homeowners unprecedented control over their financial resources.
Effortless Adjustments: Unlike traditional refinancing, STEP allows homeowners to introduce a new mortgage component without the usual hassles, streamlining the adjustment process.
Pros and Cons Overview: While STEP provides flexibility and efficiency, borrowers should be mindful of potential interest rate fluctuations and the temptation to accumulate debt without proper discipline.
Questions/Comments?
Give us a shout in the comment section or find our contact details on the main page of our website at www.triedandtruemortgages.ca
What is the Scotiabank STEP? Use This Information to Help You Access Its Full Potential.
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