OTTAWA, Jan. 15, 2019 /CNW/ - A report published today by the Financial Consumer Agency of Canada (FCAC) suggests that although home equity lines of credit (HELOCs) 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.
Most respondents scored less than 50 per cent on their knowledge of HELOCs (CNW Group/Financial Consumer Agency of Canada)
Renovations, debt consolidation, vehicle purchases and daily expenses were the main uses of HELOCs. (CNW Group/Financial Consumer Agency of Canada)
More than any other age group, 25-34 year olds responded they made interest only payments on their HELOC. (CNW Group/Financial Consumer Agency of Canada)
More than 25 per cent of respondents routinely made interest-only payments on their HELOCs (CNW Group/Financial Consumer Agency of Canada)
FCAC's report, Home equity lines of credit: Consumer knowledge and behaviour, provides the results of an online survey of approximately 4,800 Canadians to assess their knowledge, awareness and opinions regarding the key terms, conditions, fees and risks associated with HELOCs.
Most survey respondents scored less than 50% on a test related to their knowledge of HELOCs terms and conditions. The results also show that more than 25% of survey respondents made mainly interest-only payments on their HELOCs. Moreover, 62% of these interest-only payers expected to repay their HELOC in full within 5 years, an overly optimistic result considering the more than 3 million Canadians holding a HELOC owe an average amount of $65,000.
FCAC regularly conducts market studies, industry reviews and public opinion research to produce relevant and informative resources and tools for financial consumers. The Agency will use the research published today to refine its consumer education materials encouraging Canadians to make more informed decisions about HELOCs. In parallel, these findings will help inform the Agency's proactive supervision of financial institutions.
Quick facts
Over the past 15 years, HELOCs have emerged as the single largest contributor to the growth of non-mortgage household debt in Canada—more than double that of either credit cards or auto loans
Renovations, debt consolidation, vehicle purchases and daily expenses are the main uses of HELOCs
Nineteen per cent of respondents borrowed more on their HELOC than intended
Respondents aged 25-34 were most likely to struggle if their payments were to increase by $100 per month
Quote
"These results point to a pressing need for financial institutions and FCAC to help Canadians realize that not using HELOCs responsibly can have serious repercussions on their financial well-being. Without a repayment plan, consumers may carry debt longer than anticipated and slip into patterns of behaviour that trap them on a treadmill of debt."
Lucie Tedesco, Commissioner, Financial Consumer Agency of Canada
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