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2180 Steeles Avenue West,
Suite 204, Concord,
ON, L4K 2Z5

Phone:     905-761-7001
Toll Free: 1855-761-7001
Fax:          905-761-7005

Email: mortgageadvisor@rogers.com





23 July 2019

Are home equity lines of credit losing popularity?

Home equity lines of credit (HELOC) are often used for financing home renovations, but it looks like they are losing their popularity in Canada.

“HELOC loans showed the first monthly decline since May 2016 as they were already slowing after sharp gains in 2017 and 2018,” - noted Scotiabank’s Alena Bystrova and Juan Manuel Herrera.

“The latest drop means that fewer Canadians are choosing HELOCs and/or those who already have it decided to stop borrowing against their property”, - Herrera says.

He also noted that the bank doesn’t have access to the total number of HELOCs accounts open across Canada.

In his opinion, the national real estate market slowdown which followed years of strong price increases could have reduced the demand for HELOC.

“HELOC loans may have dropped because homeowners who wanted to use that money for renovations now have lower benefits as housing prices almost haven’t changed since late-2018. Any extra money spent on a property will not provide the same financial returns that it could two years ago,” - he noted.

“The central bank’s rate hikes in 2017-18 also caused higher consumer interest rates, which always restrains people thinking about additional loans,” - Herrera says.

Sharply growing home prices made more Canadians take on HELOCs as they wanted to benefit from it for their homes.

Partially, the decrease led to slower monthly household credit growth, which stopped at 4.4%, following 4.9% in April, despite a 6.3% increase in mortgage growth.

It’s the largest monthly gain since November 2018, when homebuyers hurried to make a purchase before the stress test for uninsured mortgages took force.

According to Scotiabank, HELOCs still represent a small share of consumer credits, which includes mortgages and other loans.

“In spite of the sharp growth of HELOC borrowing since early-2016, these loans have accounted for only extra 2.4% of the total consumer credit with chartered banks during the previous 3 years”, - noted Bystrova and Herrera.

Only 14% of Canadian households have a HELOC today.

About half of all HELOCs last year were provided for financing home renovations. Debt consolidation showed a 22% share, while day-to-day expenses and vehicle purchases represented 19%.

We are now offering new and innovative mortgage products which are working as a combination of mortgage and HELOC and giving you an ability to skip some payments in case of low income months or simply to improve your cash-flow. That product is ideal for well established self-employed individuals or older homeowners who have fixed income and need extra funds to support their lifestyle or finish big projects without increasing their monthly payments. Another great home equity line of credit is designed for full qualified clients with good credit, but has lower than competitors' interest rate of Prime+0.20% (currently 4.15%). Please contact us at 1855-761-7001 for more details on those new HELOCs' offerings.

 

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