Personal Investor: Most Canadians don’t understand HELOCs

Dated: 01/17/2019

Views: 40

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

Weekly mortgage applications point to a remarkable recovery in homebuying

If mortgage demand is an indicator, buyers are coming back to the housing market far faster than anticipated, despite coronavirus shutdowns and job losses.Mortgage applications to purchase a home

Read More

Rent is due: worries about being able to pay

Property managers, landlords and building owners are bracing for bad news today, as the COVID-19 pandemic’s effect on the economy is expected once again to disrupt the property rental market

Read More

As sales decline, some home and condo prices increase

Despite a global pandemic that has decimated economies around the world, Victoria’s real estate market continued to chug along in April, albeit at a much slower pace.Selling prices in some

Read More

Victoria Spring market far from the usual as real estate continues to react to pandemic

A total of 287 properties sold in the Victoria Real Estate Board region this April, 58.8 per cent fewer than the 696 properties sold in April 2019 and 52.8 per cent fewer than the previous month of

Read More