With a surprise drop in credit card debt over the holiday shopping season, lines of credit increased. Merix Financial speculates whether this could push banks to raise HELOC interest rates.
Total Canadian debt per consumer, excluding mortgages, increased to $25,709 in 2010’s fourth quarter but credit card debt actually declined by almost three per cent from the previous period, according to a TransUnion report. Meanwhile lines of credit, revolving loans and installment loans all increased but the credit card debt dropping is still a surprise for the holiday shopping season.
Merix Financial says if Canadians continue to rely more on lines of credit to finance purchases it could affect the mortgage market in an indirect way.
“With less competition in home equity credit lines moving forward and activity moving from profitable credit cards to these less profitable credit lines, there will be incentive for the banks to increase the interest rates they charge on home equity lines of credit in the future,” Merix’s director of operations Andrew Kuyper told MortgageBrokerNews.ca.
Currently, lines of credit are the second largest consumer debt carried by Canadians after mortgages. It accounts for 42 per cent of outstanding debt by the end of 2010. Albertans and Ontarians are the largest users of LOC, making up more than 57 per cent of all outstanding LOC debt.
