Home Equity Lines of Credit are as popular as ever, but some homeowners may think that they may not be able to get a HELOC in 2019 in light of recent changes and reports regarding HELOCs.
The Issue with Repayment
Research says that about 25% of those with HELOCs only manage to pay the interest for their loan most months. With the average debt at $70,000, borrowers’ ability to pay is now a bigger consideration in getting a HELOC more than ever.
Policy makers and regulators initiated some changes along with increased interest rates to address issues such as increasing debt and taming the increasing residential real estate prices.
Research on plans to pay off loans are optimistic, as shown in the Financial Consumer Agency of Canada’s data. FCAC’s Commissioner Lucie Tedesco warns that there is an increasing need for Canadians to realise that irresponsible use of HELOCs can have profound effects on their finances.
Only about 60% of the 25% surveyed by FCAC who were only paying their HELOCs’ interest rates share that they plan to pay off their loans in the next 5 years, a worrying number considering that the average HELOC debt for Canadians is at $70,000.
Moody’s Investors Service senior analyst and vice-president Jason Mercer says that there is a concern about higher debt-servicing costs caused by rising interest rates. Interest rates are continually rising because a lot of those who are in debt manage to pay only their interest. Mercer adds that since consumers are barely making regular payments, they will likely have a bigger challenge paying higher monthly payments unless they begin paying more of their HELOC debt.
The concerns over the future of HELOCs is shared by other market watchdogs. Bank of Canada Governor Stephen Poloz shared in December that how Canadians use their HELOCs is part of the many concerns keeping him up at night.
HELOCs were initially marketed by banks as a way to easily get funds for home renovations and other similar financial needs, therefore a significant number of Canadians chose to apply for it, changing the policies on HELOC now can affect a lot of people; many of whom are not ready for higher required monthly payments.
What Can Happen This Year?
Ratespy.com founder Rob McLister says that policymakers are anxious to pull the reins on HELOCs now to avoid bigger issues down the road. He adds that it is only a matter of time before HELOCs get new restrictions since both the Bank of Canada and FCAC began looking into it. He says that policymakers should remember that HELOCs are often used by people as a financial fall-back and that trying to solve debt by over-regulation is like trying to regulate heart disease by telling people to not eat French fries. Things will only get better when people take more personal responsibility
It looks like it will be more challenging to qualify for a HELOC with a bank once changes are rolled in this year. If you need to get a HELOC now, do not hesitate to contact us and we’ll try our best to assist you use your home equity.