Why Home Equity Lines of Credit Matter for Everyday Canadians

The average Canadian household with a Home Equity Line of Credit (HELOC) now has amassed a balance owing of approximately $100,000 per household.

This number is surprising in the context of the traditional conversation around household finance in Canada - one which typically revolves around the fact that such debt instruments are dangerous and should be used with caution.

With household prices continuing to rise across Canada, the real effects of any sustained bear market in housing will continue to be a discussion for another day.

That being said, the fact that three million Canadian households have HELOCs, and the average value of these HELOCs has approached six figures, concerns among many economists who consider the impacts of Canada's housing market being used as the proverbial "ATM" to finance consumer purchases certainly should not be swatted away, as may have previously been the case in the media.

Canada has experienced impressive economic growth in recent years, spurred forward by relatively conservative lending and borrowing practices. When (and not if) the next recession hits, Canada may be hit significantly harder than other G7 nations given the relative indebtedness of Canadian borrowers relative to counterparts in the developed world, meaning deleveraging at this point in time should be the name of the game for many households this holiday season.

By committing to paying back these lines of credit in an expeditious fashion, investors will retain much of the equity cushion they have built up in recent years, providing for potential liquidity when it is needed rather than when it is convenient.

Invest wisely, my friends.