What happens to heloc if move and rent out?

Question

Hi BP,

Trying to find the answer to my Heloc question and seems like I cant get a clear answer.  If I have a Heloc on my primary residence  but decide I do not want to live in a 3 family the rest of my life and move renting out my unit, what will happen to my Heloc? Will the bank find out its not my primary anymore and close down the Heloc? I did ask my banker and she did not know the answer. Anyone have any experience with this?

Thanks!

Ryan

Torrell Palmason · Answer

There are different terms on every single loan type. An Issue that might pop up is if you have lived there less than a year following the HELOC at which point they could close the HELOC.

Other than that it is a judgement call on the part of the lender as the loan was made as a Owner occupied and if they want to they can close it. However, I see the more likely being that if you make payments they won’t care.

I will caveat this with the best answer is to call your HELOC Lender and verify their terms so you are not caught unaware by anything.Best of Luck!

Jason Shackleton · Answer

Hi @Ryan Keenan

Great question. I am not sure what happens to that HELOC but that is not a game I would be playing. It sounds like you could be getting close to a potential mortgage fraud scenario.

I am in a similar situation living in a duplex that is not my forever home. I would also view this from a capital gains perspective too. If you simply move away and buy a new home and ten years goes by then you sell. Your entire gain on your first property could all be seen as taxable capital gains.

Simple answer: get an appraisal when you move out. That appraisal will mark the day it stopped being your principal residence and became a rental. Then hopefully when you do sell it you can pay less capital gains. Also instead of doing a HELOC just do a refinance in the property.

I also live in Canada so check out your local tax and capital gains rules etc.

Good Luck