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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.
Frederic Lachance, a Montreal-based Licensed Insolvency Trustee with MNP LTD, the country's largest insolvency firm, cautions Quebecers against ramping up borrowing against their homes.
"A HELOC might seem like a cheap and convenient mechanism for credit, but what can happen is that some people borrow too much and end up struggling with the debt in the long term. They max out and then they have no other plan to cover unexpected expenses," says Lachance.
According to a recent survey conducted by Ipsos on behalf of MNP LTD, fifteen per cent of homeowners in Quebec with a HELOC say they have used the funds borrowed to pay down other debts. Over a quarter (26%) say they have used the money to do things they otherwise wouldn't have been able to do, such as home renovations.
"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 sometimes used as an ATM. The cash withdrawn is being used to pay other bills or - even worse - to fuel household spending," he says.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 one in ten (8%) Quebecers admit they have used their HELOC to fund discretionary purchases, such as a vacation or new car. Just over ten per cent (11%) say they have used their HELOC to invest in other real estate investments.
"HELOCs can be particularly troublesome for those who don't have firm financial footing. They 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 one in ten (9%) Quebecers with a HELOC say that they regret the amount they've borrowed against their home and a similar proportion (8%) say that they are concerned about paying off their HELOC.
"Those who are already cash starved 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. Instead, these individuals should seek out professional financial guidance to help deal with their debt," says Lachance.
The latest official figures from the Office of the Superintendent of Bankruptcy (OSB) show a slight increase in the number of consumer insolvencies in the province. In the second quarter of 2019, the number of Quebecers who filed for insolvency was up 1.2 per cent compared to the same quarter of last year and up the same amount over the first quarter. Canada-wide the number of insolvencies 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.
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.
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