Do you know that about 3 million Canadians have an existing home equity line of credit but survey says that half of us don’t truly understand how they work? According to survey, 35% of people in Canada have a home equity line of credit and 19% admitted that they borrowed more than they intended.
Rising Popularity, Will it Lead to Downfall?
Home equity lines of credit have risen in popularity over the past 15 years and yet survey says that a significant number of Canadians don’t really understand home equity loans work and when they should be paid.
According to the study released by FCAC or the Financial Consumer Agency of Canada, more than 3 million Canadians have a HELOC with an average debt of about $65,000. In fact, more than 25% of those who have a HELOC has a balance of more than $150,000 and 25% also admitted that they only pay the interest payments per month.
Crunching the Numbers
4,800 Canadians were surveyed by Ipsos on behalf of FCAC to determine the need for more financial education back in the middle of 2018. 35% of those surveyed have a HELOC while 54% have a mortgage.
FCAC communications strategist Michael Toope says that HELOCs are undoubtedly cheap sources of credit and that Canadians may need more information on how to use HELOCs well.
Just to note, a HELOC is a revolving type of credit product that is secured by home equity. A borrower can get access to a ceiling of about 65% of the value of the home via HELOC and application is a breeze considering that HELOCs are often offered by banks to people with home equity.
The issue with HELOCs and other types of home loans is that they can be too easy at times to apply for, resulting in people with little to no understanding getting a home loan that they do not know how to manage, much more repay. This results in unwise spending and struggling with debt later.
While a HELOC and other home equity loan options are designed to provide temporary financial relief, improper use and failure to pay can lead to a borrower losing his or her home. The lack of knowledge of consumers who has a HELOC is the real culprit behind giving home equity lines of credit a bad name in recent times.
Although it is true that interest has been climbing up since 2017, the real issue is financial mismanagement due to not understanding borrower’s responsibilities and consequently, neglecting them.
Yes and no. For the two-thirds of Canadians who told the survey that they only use their HELOC as a revolving line of credit, a HELOC is a financial tool to help them manage their money better and even build wealth. For those who don’t pay on time and spend beyond their means, a HELOC can be a disaster in the making. The key is financial education.
Are you worried about getting a HELOC? Do you need help understanding what a home equity line of credit is and how you can use it to your advantage? Contact us and we’ll be happy to answer your queries. Our mortgage professionals will help you assess whether a HELOC is right for you.