Brokers are wary about the high level of HELOCs in Canada, and the long-term effect they could have on household debt.
“I think HELOCs are detrimental to the housing market; people are running themselves up in debt and at least with a mortgage you pay it down,” Gary Green of Mortgage Plus told MortgageBrokerNews.ca. “With a HELOC, though, you can just keep running the credit up.”
Canadian outstanding debt currently sits at $266 billion, according to RBC, a chunk of that in home equity lines of credit.
According to CAAMP’s most recent figures, 22 per cent of Canadians have a home equity line of credit.
And skyrocketing prices in many markets have industry players worried that clients will be enticed to overdraw themselves with more debt than is necessary.
“It’s like turning your house into an ATM,” chartered accountant and personal finance author David Trahair told the CBC. “If you’ve got a house, especially in Toronto with these insane values, you can borrow an incredible amount of money against the house.”
And while lenders have become more stringent about HELOCs, brokers say they are still easily accessible.
“Lenders have gotten more strict with offering HELOCs but they’re still relatively easy to get,” Green said. “The banks have tightened up and they’re looking at cash flow a lot more these days.”
For his part, James Shinners of Mortgage Managers believes HELOCs can be a good vehicle for clients with high cash flow, though he admits many don’t consider that circumstances can change.
However, it’s another type of credit that Shinners is most worried about.
“I’ve had clients who had mortgages paid off and the banks offered an unsecured line of credit that they’ve had to convert into mortgages to pay off,” Shinners said. “The banks are in it for the money, not for the client, so we always tell clients to call us first to help them decide what is best for them.”