In the hottest markets, the rate of growth in this product type is almost three-fold that of mortgages
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HELOC payments are consistently outpacing every other debt type in Toronto and Vancouver, according to figures from Equifax and Canada Mortgage and Housing Corporation.
During the first quarter of the year, the average HELOC payment in Toronto went up by 14.48% annually, reaching $593 per month. This far outstripped the growth rate seen in the market’s mortgage payments, which increased by just 5.42% year-over-year, ending up at $1,752 per month.
In Vancouver, HELOC debt servicing rose by 12.29% annually in Q1 2019, settling at $667 per month. This pace was almost three times the speed of mortgage payment growth, which significantly trailed at just 4.85%, reaching $1,881 per month.
However, these notable increases in HELOC payments might actually be going to just even more debt servicing. Earlier this year, a report by the Financial Consumer Agency of Canada stated that approximately 27% of Canadians holding this loan type are paying for just the interest.
The proportion of HELOC users with limits greater than $75,000 (around 49% as of Q1 2019) accounted for a significant number of mid- and upper-class Canadians using high-value homes for their loans.
For perspective, HELOC holders borrowing from federal banks have a loan of around $65,000 on average, the agency added.
A similar proportion of HELOC users (49%) reported using the money for renovations, while 22% took advantage of the sum for debt consolidation. Another 13% stated that HELOCs help pay off other financial accountabilities.
While the product has enjoyed mounting popularity in recent years, though, the agency cautioned that “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.”
