Personal Investor: Most Canadians don’t understand HELOCs

Dated: 01/17/2019

Views: 45

Jan 16, 2019

Personal Investor: Most Canadians don’t understand HELOCs

 

Personal Investor: Most Canadians don't understand HELOCs

Columnist image
Dale Jackson

Your Personal Investor

|Archive

Most respondents to a new survey from the Financial Consumer Agency of Canada scored less than 50 per cent on their knowledge of home equity lines of credit (HELOCs).

That’s alarming, considering HELOCs have become a way of life for young Canadian households looking for easy, relatively cheap money. According to the federal financial consumer watchdog, Canadian HELOCs currently carry an average balance of $65,000.

The agency also said over the past 15 years, HELOCs have become the largest contributor to growth of non-mortgage household debt in Canada – more than doubling credit cards or auto loans.

Most HELOCs are used to borrow for home renovations, debt consolidation, vehicle purchases and daily expenses, according to the survey.   

A generation ago, the very idea of leveraging the roof over your head for cash suggested financial dire straits. Yet, dire straits seem to be where many homeowners with HELOCs are heading. The same survey found 19 per cent of Canadians borrowed more than originally intended, and 25 per cent only paid back the interest on the loan while the principal grew. It also found those aged 25 to 34 were most likely to struggle if their payments were to increase by $100 a month.  

Interest rates on HELOCs are generally tied to the prime lending rate of the major banks since the house is used as collateral. According to the consumer agency, debt accumulation and rising borrowing rates could put many Canadian households at risk of default and could have a negative impact on the entire housing sector.

Blog author image

Steven Axford

Steve Axford grew up in Victoria, BC and has always been active in his community. Steve is a Victoria Cougars Hockey Team alumni as well as a Victoria Shamrocks (intermediate) alumni. During his time....

Latest Blog Posts

Understanding Canada’s Record Home Sales Last Month, And Why It’s Likely To Continue

Canada’s late Spring real estate market continues, but some of the pent-up demand has caught up. Canadian Real Estate Association (CREA) data show a new all-time record for August

Read More

Victoria real estate market experiences an active summer

A total of 979 properties sold in the Victoria Real Estate Board region this August, 48.1 per cent more than the 661 properties sold in August 2019 and exactly the same total as the previous month

Read More

Victoria real estate market continues to adapt in the changing times

August 4, 2020  A total of 979 properties sold in the Victoria Real Estate Board region this July, 38.7 per cent more than the 706 properties sold in July 2019 and 21.2 per cent more than the

Read More

Victoria real estate market continues to adapt in the changing times

 A total of 979 properties sold in the Victoria Real Estate Board region this July, 38.7 per cent more than the 706 properties sold in July 2019 and 21.2 per cent more than the previous month

Read More