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Using mortgage cash account as HISA (lemm.ee)

submitted 11 months ago by [email protected] to c/[email protected]

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Anybody have experience using BMO mortgage cash account? This is where you can pre-pay down the principle and then supposedly withdraw those funds when needed. I’ve been frustrated by the terms and conditions on my daily HISA so thinking this could be a way to get the equivalent of 5.15% (my current mortgage rate) for money that I don’t need to touch frequently. Seems like I can’t do better than this even in a HISA ETF.

My concerns are: am I thinking about this the right way? (Paying down principle on mortgage is equivalent to earning that percentage in a regular bank account?). Does this BMO mortgage feature really work like this? It wasn’t advertised to me, I had to dig into it.

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[–] [email protected] 1 points 11 months ago (1 children)

If your mortgage balance is low, it might make more sense to switch the whole thing to a HELoC. I switched when my mortgage fell below 50% of my original balance. It worked out for me because interest rates were low, and when I was down to about 30% of my original mortgage amount, I received an inheritance that mostly wiped it out, leaving me with a super-cheap line of credit that I used to borrow against so that I could invest.

[–] [email protected] 1 points 11 months ago* (last edited 11 months ago) (1 children)

If your mortgage balance is low, it might make more sense to switch the whole thing to a HELoC.

Could you elaborate on that? I don't understand how a standalone HELOC would be more beneficial than a re-advanceable mortgage. The latter typically combines a mortgage and a HELOC under one umbrella, allowing quicker access to newly-acquired home equity since you can immediately re-borrow the money you've paid off.

[–] [email protected] 2 points 11 months ago (1 children)

A HELoC doesn't have strict repayment terms, and usually has a capped borrowing limit. My original mortgage was $200k. I paid it down to $100k over 10 years. I switched to a HELoC (the rate was about the same) and ended up with a $100k line of credit. I paid it down some more, and then received an inheritance, wiping out the balance completely. I lived mortgage free for a few months, then borrowed to invest in my non-registered savings, writing off the interest expense.

[–] [email protected] 2 points 11 months ago

To my understanding, this is how re-advanceable mortgages work: the mortgage portion and the HELOC portion are separate. But, as soon as you make a repayment on the mortgage, your available borrowing limit on the HELOC increases.

This separation is useful, for example, when implementing the Smith Manoeuvre, as you need to keep track of the interest paid on the money borrowed to invest.

However, when renewing, the amount you owe on the HELOC might be incorporated into the mortgage, especially if you switch to a lender that doesn't offer re-advanceable mortgages.