Scotia Total Equity Plan – STEP Review

The Scotia Total Equity Plan, also known as STEP, is a product of Scotiabank that allows homeowners to access home equity through credit products. It offers several advantages; however, there are some downsides to consider.

This comprehensive guide will explore everything you need to know about STEP, including how it works, its key features and benefits, eligibility requirements, interest rates and fees, alternatives, and frequently asked questions. Read on for a complete overview of whether STEP is the right home equity solution for your needs.

What is the Scotia Total Equity Plan?

The Scotia Total Equity Plan is a lending program by Scotiabank that allows homeowners to leverage the equity in their homes.

STEP functions similarly to a home equity line of credit (HELOC) but with the ability to mix and match different products. With one application, homeowners can access equity through various Scotiabank credit products like mortgages, lines of credit, and potentially credit cards without selling their property.

STEP differs from a traditional mortgage in providing ongoing access to your equity as you pay down your mortgage. As your equity grows, so does your borrowing power. With STEP, you can divide your mortgage into up to 3 components with varied rates and terms.

What are the key features of Scotiabank STEP?

The Scotia Total Equity Plan offers several useful features:

Access Up to 80% of Home Equity Without Selling

With STEP, you can initially borrow up to 80% of your home value in mortgages and 65% in lines of credit. This gives you access to a substantial portion of your equity for your financial needs while retaining ownership and control of your property.

The funds accessed can be used for large expenses like renovations, repaying high-interest debt, or financing major events like weddings, education costs, etc.

Flexible Access to Funds

Once approved for STEP lending limits, you can access the funds as needed rather than taking an upfront lump sum. You only have to pay interest on the amounts you use. So, if you borrow $20,000 out of a $100,000 limit, you only pay interest on the $20,000 until it is paid back.

This flexibility makes STEP helpful for managing unpredictable expenses or changes in income. You can borrow more or less month-to-month within your set limits.

Gradual Decrease of Limit Over 25 Years

When you first get approved for STEP, your limit is up to 80% of your home’s value. However, this maximum limit gradually decreases down to 65% over a 25-year period.

For example, if your home value was $500,000 when you got STEP, your limit would start at $400,000 (80%) and eventually decrease to $325,000 (65%) over 25 years.

This gradual decrease helps manage overall borrowing levels responsibly over the long run.

Lower Interest Rates Than Unsecured Loans

Using your home equity as collateral, STEP products like mortgages and lines of credit offer lower interest rates than unsecured alternatives since they are riskier forms of lending without collateral.

Based on current rates, STEP mortgages can have rates around 2-3% lower than unsecured debt. These interest savings add up over the lifetime of the loan.

STEP Helps Pay Off Mortgage Faster

STEP allows lump-sum prepayments on your mortgage without having your extra cash trapped in home equity.

• This makes it easier to pay down your mortgage faster since any extra payments directly lower the principal balance rather than just accumulating as inaccessible home equity.
• Paying off your mortgage faster saves significantly on interest costs over the long run. STEP allows you to accelerate this repayment strategically.

Mix and Match Credit Products

STEP lets you combine mortgage solutions and lines of credit under one plan. This mix-and-match flexibility provides funding tailored to your needs. Rather than just getting a standard mortgage or line of credit, you can combine mortgages, lines of credit, and potentially credit cards, all customized to your preferences.

Up to 3 Mortgage Solutions

Under STEP, you can divide your mortgage into three separate mortgages, each with customized terms and rates.

For instance, you may want a 5-year fixed rate mortgage for one portion, a variable rate 1-year mortgage for another, and a longer-term fixed mortgage for the remainder.

Having up to three customized mortgages lets you manage risk and cash flow effectively.

Automatic Limit Increase

One of the most useful features of STEP is that it can automatically increase your line of credit limit as you pay down your STEP mortgage principal.

As your mortgage balance decreases, your equity increases. STEP can leverage this growing equity pool to incrementally raise credit line access.

This automatic increase happens without you having to manually request more credit or reapply. It gives you an evergreen lending limit that keeps pace with your financial situation over decades of homeownership.

How do you qualify for the Scotia Total Equity Plan?

To qualify for STEP, homeowners must meet the following eligibility criteria:

• Minimum 20% equity – You need at least 20% equity in your home to get approved. This ensures you have enough collateral.
• Good credit score – STEP applicants should have a good credit score, indicating they can manage debt responsibly. Specific minimum scores vary.
• Scotia mortgage customer – STEP is only available if you have an existing or new Scotiabank mortgage.

Meeting the minimum requirements above is key for qualification. You’ll also need to provide income verification and undergo a standard credit check.

Scotiabank STEP Rates and Fees

STEP mortgage and line of credit interest rates are based on variable rates tied to Scotiabank’s prime rate, which is currently 5.45% as of December 2024.

Below is a table summarizing key STEP interest rates and fees:

	Interest Rates	Fees
Mortgages	As low as Prime – 0.15% variable	No application fees
Lines of Credit	As low as Prime + 0.5% variable	Standard mortgage prepayment penalties

Specific rates depend on market conditions and your personal profile. Scotia advertises rates starting from prime minus 0.15% for mortgages and prime plus 0.5% for lines of credit. However, final rates are determined on a case-by-case basis.

STEP has no application fees beyond standard mortgage charges. However, normal prepayment penalties apply if you exceed your annual limit.

How To Apply for Scotia Total Equity Plan?

There are four main ways to submit a STEP application:

• With the New Mortgage Application: The most common way is applying for STEP simultaneously when you apply for a new Scotiabank mortgage.
• Online: You can begin the application process online through Scotia’s website. You’ll need to follow up with documents and signatures in person.
• In Branch: Visit a Scotiabank branch to apply and provide all documentation. This offers face-to-face support.
• Over Phone: Call 1-866-267-9806 to have a Scotia representative walk you through the application by phone.

Applying online or via phone lets you get started quickly. Completing the process in the branch ensures you have access to immediate guidance.

What are the Cons of STEP to consider?

Scotiabank STEP program also has there are 5 potential drawbacks to consider:

Home Used as Collateral

With any lending tied to home equity, your house is used as collateral. Defaulting on STEP loans could put your home at risk.

Rates Fluctuate With Prime

Because STEP interest rates are variable, they can rise when the prime rate goes up. This reduces predictability.

Risk of Overspending/Overborrowing

As with any credit product, overusing STEP lending for unnecessary purchases adds financial risk. Large approved limits could tempt some homeowners to overspend or overborrow, taking on excessive debt.

Ongoing Reduction of Credit Limit

A decrease in the credit limit from 80% to 65% over 25 years reduces flexibility over time.

Prepayment Penalties

Prepaying too much can incur fees and penalties, reducing the benefit of accelerated repayment.

While advantageous in many ways, STEP isn’t perfect. Weigh the pros and cons carefully based on your specific financial situation.

What are the Alternatives to STEP?

Other banks also offer home equity lending options similar to STEP:

Products	Features
TD Home Equity FlexLine	Access up to 80% of home equity Variable interest rate tied to TD Prime No annual or renewal fees
RBC Homeline Plan	Borrow up to 80% of home value Get both mortgage and line of credit Access equity for 25 years
CIBC Home Power Plan	Mix and match mortgage, line of credit, loan Interest rates as low as CIBC Prime – 0.5% Borrow up to 80% of home value
BMO Homeowner ReadiLine	Lines of credit at rates from BMO Prime + 1% Borrow up to 80% of your home equity Prepayment privileges available

Compare all options to find the best home equity solution for your financial needs and goals.

Summary

For Canadian homeowners with sufficient equity, the Scotia Total Equity Plan provides an accessible way to leverage your home’s value for financing needs through mortgages, lines of credit, and loans.

STEP offers key benefits like competitive rates, flexible repayment, and liquid access to approved credit limits without having to reapply. This can provide an affordable lending solution for debt consolidation, renovations, investments, and more.

However, homeowners must be cautious with any debt secured against their home, as overborrowing or defaulting on payments comes with significant risks. Compare interest rates and shop around to ensure STEP provides ideal terms and limits for your situation.

FAQs

Article Sources

1. Scotiabank’s STEP (Home Equity Line of Credit) | Review and FAQ
2. Scotia Total Equity Plan (STEP)