After Canada’s main home equity line of credit (HELOC) lender, TD Bank, recently finagled their mortgage application review process, Canadians with a HELOC need to step carefully. Especially given the special attention paid to applicants who already have a second mortgage on their home.

It’s evident now that the nation’s big banks are paying attention to the big picture of debts, considering a customer’s entire amount of debt. While an applicant may have no balance on their HELOC, they might not qualify for a new mortgage.

A Breakdown of HELOC

A secured form of credit, HELOC is similar to credit cards in that borrowers can extract its funds at the immediacy of their needs, provided they don’t surpass the bounds of the approved amount.

When a HELOC is secured, it may be used and paid at a borrower’s leisure—with the lender using the home as collateral. A HELOC can be taken out in tandem with a mortgage, or on its own.

The New Rules

As of November 5, thousands of borrowers have suddenly been nudged above the debt-ration limit. Before, lenders only looked to confirm HELOC-holders could afford the payments of money owed when applying for a second mortgage. Lenders would also figure out payments based on owed balance, their fixed rate, and a 25-year amortization for those owning a portion of their HELOC.

Now, in order to be approved for a second mortgage, a HELOC-holder must prove their ability to e carry the entirety of their line of credit as well as the payments on their second mortgage. Lenders automatically assume that applicants could take out the entire sum of a loan, without any prior proof.

HELOC applicants will also have to pass a “stress test” to ensure their ability to repay at the highest interest rate.

Navigating the System

As a means to sidestep the stringency of these new rules, HELOC-holders want to apply for second mortgages, they will want to reduce or close their lines of credit. Or, they can find a higher-interest lender who doesn’t adhere to the policy.

It should also be noted that most of the big banks haven’t taken on these tougher rules and there’s reason to believe they may only apply to new applications.