Over the past 15 years, HELOCs have emerged as the single largest contributor to the growth of non-mortgage household debt in Canada—more than double that of either credit cards or auto loans.
A study by the Financial Consumer Agency of Canada (FCAC) shows that most of the 4,800 participants in a HELOC terms knowledge test scored below 50%.
The agency is warning that borrowers are risking over-borrowing, persistent debt, and wealth erosion from their uninformed decision making.
It’s urging lenders to help educate consumers about the potential downside to HELOC borrowing.
"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. Without a repayment plan, consumers may carry debt longer than anticipated and slip into patterns of behaviour that trap them on a treadmill of debt," said FCAC commissioner Lucie Tedesco.
FCAC says that the average HELOC balance held by around 3 million Canadians was $65,000.
However, a quarter of respondents are only repaying interest but 62% of them still believe that they will clear their loan within 5 years.
The survey reveals that 19% of respondents had borrowed more on their HELOC than they intended; and younger borrowers (aged 25-34) were more likely to say a $100 increase in the monthly payment would be a struggle to afford.