A consumer agency says Canadian homeowners are borrowing against those dwellings in increasing numbers -- with many not making regular payments against the principal, thus adding financial stress to households already carrying a record level of debt.
A report issued Wednesday by the Financial Consumer Agency said the number of households that have taken a home equity line of credit (HELOC) on top of their mortgage has soared nearly 40% since 2011. The report has added to concerns about consumer debt linked to Canada's slowing housing market. One of the report's authors suggests HELOC's are helping those homeowners to use their homes as ATMs.
The report also says outstanding HELOC balances reached $211 billion in 2016, according to the report. There are about three million HELOC accounts in Canada, with an average outstanding balance of $70,000.
Canada's debt-to-income ratio has risen to record levels in recent quarters to levels surpassing those seen in the United States prior to the 2008-09 housing crash, and policymakers have repeatedly warned that households are vulnerable to an unforeseen event or economic shock.
The report by the consumer agency showed some 40% of consumers do not make regular payments toward their HELOC principal, and most consumer do not repay their HELOC in full until they sell their home.
The agency also said banks and other lenders are increasingly offering re-advanceable mortgages, which combine term mortgages with HELOCs and other credit products, to customers. The complexity and risks of such products are often not well understood by indebted consumers
