According to a survey 27% of homeowners have a HELOC with half paying down principal


A new poll shows that some Canadian homeowners have weak balance sheets because interest rates are going up. The poll, conducted by BNN Bloomberg and RATESDOTCA, indicated that 27% of participating homeowners had used a home equity line of credit (HELOC). Nearly 80% of the participants have used it, and 50% of them have done so within the last two years. In addition to the pressure of rising interest rates, the Office of the Superintendent of Financial Institutions released new real estate lending criteria on Tuesday. Late in 2023, borrowers will be compelled to make principal and interest payments on combined debts exceeding 65% of the property’s value.

Before the imposition of these restrictions, HELOCs were an appealing way for homeowners to tap their home equity during the previous decade’s era of cheap interest rates and rising property prices. Nevertheless, the survey findings indicate that the recent interest rate rises by the Bank of Canada may have affected how older Canadians leverage their home equity. It is a consequence of the low-interest rates of the preceding decade. Since HELOC interest rates change all the time, borrowers will have to make bigger monthly payments.

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The poll revealed that eight percent of HELOC holders make interest-only payments on their HELOCs. Another 16% of respondents said that they often make interest-only payments and sometimes make principal payments. 55% of HELOC borrowers said that they make monthly payments beyond the interest to reduce their debt. The remaining 21 percent of HELOC borrowers either didn’t know their payment plan or declined to respond. In conjunction with a mortgage, homeowners may use a HELOC to access their home’s equity by borrowing up to 80 percent of its value. The Office of the Superintendent of Financial Institutions announced impending rule modifications on Tuesday. Late in 2023, borrowers would be compelled to pay both principal and interest on any loan amount over 65% of the home’s value.

Technically, HELOC lenders may demand full payment at any moment, and clients often must pay off their HELOC before switching mortgage lenders. It might be problematic if borrowers do not put aside more funds to pay down their HELOC to stay up with rising interest payments. The poll indicated that the most common use of a HELOC by borrowers was for home repairs, with 43% stating that this was their primary purpose for borrowing. Another 30% of respondents reported using a HELOC for debt consolidation. Thirteen percent indicated that their HELOC was mostly used for vacations.

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Leger surveyed 1,507 Canadians between 3 and 5 June; 972 (65%) of the respondents said that they were homeowners. To better comprehend how families are handling COVID-19, BNN Bloomberg has partnered with RATESDOTCA to conduct a monthly survey of Canadians on crucial financial matters. It is the most recent monthly special coverage installment.

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Due to the ability of HELOC lenders to demand full payment at any moment, customers who have not put aside additional funds to lower their HELOC amount in response to increased interest rates may face anxiety. According to the poll findings, 58 percent of respondents currently owe money on their home equity line of credit. Although the majority of respondents reported borrowing less than $50,000, 10% reported borrowing above $100,000. It is more common for Canadians aged 55 and older to have at least $50,000 in their retirement accounts. Sixty percent of the 1,507 Canadians who participated in the study reported that they were homeowners.

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