Canadians Love Their Home Equity Lines of Credit
Canadians are big fans of real-estate secured debt. With interest rates 4-5% lower than an unsecured lines of credit, who can blame them?
In fact, in Q4 2023, Canadians owed $150,000,000,000 in HELOC debt according to the Bank of Canada’s methodology and $212,039,737,152 according to the CMHC’s count. (Defining a HELOC gets really ugly when you get into the weeds and start considering hybrid products like Manulife One, or amortized HELOCs)
Many Have Access to HELOCs, But What Is the Balance Owing?
The numbers quoted above are the total financial obligations of Canadians.
This is the balance owed and not the amount Canadians are authorized to spend.
In fact, according to the Bank of Canada, Canadians have access to $679 billion dollars of HELOC debt, and some quick math will tell us that around 31% of it has been spent. (see table below for a breakdown)
Make Your Minimum Payment, Or Else
The 31% of HELOC customers who have a balance are required to make monthly minimum payments, or in some cases, they are on an amortization, which also comes with a monthly payment. (this is more like a mortgage)
In any case, everyone who has a HELOC balance has a monthly payment, and collectively these required payments are referred to as “monthly scheduled payments” by the CMHC.
Failure to make your monthly payment can result in:
- your lender reducing your credit limit
- your lender has the right to demand that you pay the full amount of the HELOC balance
- your credit score can decrease
- and in the worst case, your lender can take possession of your home, and sell it to pay off the debt. (power of sale)
The Government of Canada has good information on the different types of HELOCs, and how minimum payments work here.
Typical Required Monthly HELOC Payment Has Surged 87% in Under Two Years: CMHC
Brand new data released quietly by the CMHC this week reveals that the average home equity line of credit holder (who has a balance) has seen their scheduled monthly payments increase by 87% in under two years.
The typical Canadian HELOC holder with a balance now owes $948 per month, up from $505 per month in Q1 2022.
The Bank of Canada table discussed at the beginning of this article shows that HELOC balances haven’t increased much over the last few years, and this suggests the surge in HELOC minimum payment comes as a direct result of increased interest rates. (most HELOCs are variable in nature and increase in lock-step with the Bank of Canada overnight rate)
Debt-holders of all stripes in Canada are feeling the pinch – and HELOC holders are certainly not an exception; $440 per month in additional debt service is enough to strain most household’s budget book.
