HELOC misunderstandings weigh on housing risks
Just over one quarter of Canadians with home equity lines of credit are paying only the interest portion of the loan, a government survey found.
Additionally, almost three in 10 respondents use such lines of credit at least some of the time to make payments on other debt, according to an online poll by the Financial Consumer Agency of Canada released Tuesday.
Over the past 15 years, home equity lines of credit have been the largest contributor to Canadian non-mortgage household debt. Tuesday’s report follows similar studies from the the country’s federal housing agency and the Bank of Canada that highlighted some of the risks associated with such loans.
The average HELOC holder at a federally regulated bank owes $65,000. The survey by the Ottawa-based consumer protection agency was designed to track how home equity lines of credit are being used, and how much consumers know about them.
Although the loans are widely sold, “many consumers appear to lack awareness of the terms and conditions of this financial product, exposing them to the risk of over‑borrowing, debt persistence, uninformed decision-making and wealth erosion,” the agency said.
Some of the highlights of the survey include:
- 27 per cent of HELOCS users reported paying only the interest portion most months
- 49 per cent of HELOC users in the sample used them to pay for renovations, which was the primary use of the instrument, while 22 per cent used them for debt consolidation
- 13 per cent said they regularly use HELOCS to meet payments on other debt, while 16 per cent said they did this “sometimes”
- 49 per cent of HELOC holders said their limits were over $75,000