Home equity lines of credit may be becoming more popular, but that doesn’t mean consumers understand the risks, a report from the Financial Consumer Agency of Canada (FCAC) says.
In FCAC’s survey of 4,800 Canadians, more than one-quarter made only the interest payments on their home equity lines of credit (HELOCs). Despite this, 62% of the interest-only payers expected to repay their HELOCs within five years.
More than three million Canadians hold HELOCs, FCAC says, owing an average $65,000.
The majority of survey respondents also scored less than 50% on a test measuring their knowledge of HELOCs’ terms and conditions.
“These results point to a pressing need for financial institutions and FCAC to help Canadians realize that not using HELOCs responsibly can have serious repercussions on their financial well-being,” said FCAC commissioner Lucie Tedesco in a statement.
HELOCs are the single largest contributor to the growth of non-mortgage household debt in Canada, FCAC says.
Read the FCAC report here.