The Financial Consumer Agency of Canada is warning that the growth of Home Equity Lines of Credit in Canada may be putting some consumers at risk.
In a news release issued today, the FCAC says:
The report, titled Home Equity Lines of Credit: Market Trends and Consumer Issues, centers on the use of HELOCs by consumers, on how banks offer them and the benefits and risks of borrowing against home equity.
The report also reveals that lenders are increasingly offering readvanceable mortgages, which combine term mortgages with HELOCs and other credit products, to customers.
Readvanceable mortgages are complex. The report found that many consumers would benefit from more and clearer information about how readvanceable mortgages work, the applicable fees, terms and conditions, and the risks potentially involved. Providing consumers with more resources would put them in a position to make informed decisions about whether to finance their home purchases with readvanceable mortgages.
Among other things, the report flags a number of issues:
- Banks reported to FCAC that a readvanceable mortgage is now the default option offered to credit worthy mortgage customers with down payments of at least 20 percent.
- Of the approximate 3 million HELOC accounts, 80 percent were held under readvanceable mortgages in 2016.
- The number of households that have a HELOC and a mortgage secured against their home has increased by nearly 40 percent since 2011.
- 40 percent of consumers do not make regular payments toward their HELOC principal.
- 25 percent of consumers pay only the interest or make the minimum payment.
- Most consumers do not repay their HELOC in full until they sell their home.