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Calgary, AB – August 20, 2019 – Home equity lines of credit (HELOCs) have emerged as one of the biggest contributors to the growth of household debt in Canada, particularly in markets where real estate values have surged over the last decade. The latest data from the Office of Superintendent of Financial Institutions (OSFI) shows that the balance of loans secured by residential real estate has reached another record high of 269 billion in June.
Grant Bazian, president of MNP LTD, the country's largest insolvency firm, says that it is concerning that Canadians are ramping up borrowing against their homes even as the real estate market appears to be slowing in certain markets.
"For a lot of people, home equity is likely their plan for savings and sometimes for retirement. A HELOC might seem like a cheap and convenient mechanism for credit, but what can happen is that they borrow too much and end up struggling with the debt in the long term because they have no plan to cover unexpected expenses," says Bazian.
According to a recent survey conducted by Ipsos on behalf of MNP LTD, three in ten (27%) Canadian homeowners with a HELOC say they have use the funds borrowed to pay down other debts. Over a third (36%) say they have used the money to do things they otherwise wouldn't have been able to do, such as home renovations.
"It seems there was a time not so long ago when paying off the mortgage was an important financial goal for households. But today the house is an ATM and the cash withdrawn is being used to pay other bills or - even worse - to fuel household spending," he says.
The survey showed that only about 1 in 7 (14%) Canadians say have used their HELOC to fund discretionary purchases, such as a vacation or new car. Just about one in ten (9%) say they have used their HELOC to invest in other real estate investments.
"There is a lot of uncertainty that comes with HELOCs so this type of debt is particularly troublesome for those who don't have firm financial footing. It can put people on the fast track to an endless cycle of debt especially if the borrower accumulates more debt on the credit cards after paying them off with a HELOC," he explains.
About 1 in 7 (14%) Canadians with a HELOC say that they regret the amount they've borrowed against their home a similar proportion (14%) say that they are concerned about paying off their HELOC.
"Those who are already cash-strapped and unable to meet other debt repayment obligations may think a HELOC will help them make ends meet but taking on more debt may put them at greater risk of foreclosure or insolvency. What they really need is professional financial guidance to help deal with their underlying debt," says Bazian.
Underscoring Canadians financial vulnerabilities when it comes to consumer debt, the latest official figures from the Office of the Superintendent of Bankruptcy (OSB) continue to reinforce the mounting strain on many households. The number of Canadians who filed for insolvency in the second quarter of 2019 was up 7.4 per cent compared to the same quarter of last year and up 8.8 per cent over the previous quarter. Newfoundland (+23.4), Ontario (+13.3), New Brunswick (+11.4%), Alberta (+10.3%) experienced the greatest increases compared to the second quarter of last year. While British Columbia (+5.5%), Manitoba (+5%), Nova Scotia (+4.5%), and Quebec (+1.6%) increased moderately. Saskatchewan was the only province that experienced a decrease (-3.6%).
MNP LTD, a division of the national accounting firm MNP LLP, is the largest insolvency practice in Canada. For more than 50 years, our experienced team of Licensed Insolvency Trustees and advisors have been working with individuals to help them recover from times of financial distress and regain control of their finances. With more than 230 Canadian offices from coast-to-coast, MNP helps thousands of Canadians each year who are struggling with an overwhelming amount of debt. Visit MNPdebt.ca to contact a Licensed Insolvency Trustee or use our free Do it Yourself (DIY) debt assessment tools.
MNP LTD is the creator of the MNP Consumer Debt Index, an industry-leading national barometer of financial pressure among Canadians.
The survey was compiled by Ipsos on behalf of MNP LTD between June 14 and June 17, 2019. For this survey, a sample of 2,111 Canadians aged 18 years and over was interviewed. The precision of Ipsos online polls is measured using a credibility interval. In this case, the poll is accurate to within ±2.4 percentage points, 19 times out of 20, had all Canadian adults been polled. The credibility interval will be wider among subsets of the population. All sample surveys and polls may be subject to other sources of error, including, but not limited to coverage error, and measurement error.
A summary of the provincial data is available by request
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