Young homeowners could face challenges with home equity lines of credit

In Canada, there are over three million home equity lines of credit (HELOCs). Banks sell these products under different names, and often combine them with a regular mortgage.

The average unpaid balance for HELOCs is around $65,000. According to the Financial Consumer Agency of Canada and Bank of Canada, HELOCs are the main contributor to non-mortgage consumer debt, more than twice the level of credit cards or car loans.

This reality also applies to young homeowners. Did you know that in a recent FCAC survey about two in five HELOC borrowers aged 25 to 34 said they pay the interest only? Over one third often use it to meet other loan payments. One in four respondents said they would struggle if their monthly payment were to increase by $100.

If this is your situation, you know that it can do you serious damage. Not only could your credit rating suffer if you are in default of payment, but by not paying back enough of the principal, your debt load will stay the same and you may not be able to get out from under it.

Before taking out a HELOC:

  • Determine whether you need additional credit or if you can reach your goals by saving instead.
  • Ask yourself if this is a good debt to take on.
  • If your need is justified, determine whether the loan suits your budget and consider things like flexibility, fees, interest rates, and terms and conditions.
  • Make a clear plan of how you will use the money you borrow and create a realistic budget for your projects.
  • Determine the credit limit that you need. Do not borrow more than you need.
  • Shop around and negotiate with different lenders.
  • Study the details of the credit or loan arrangement.

Establish an effective repayment plan:

  • Pay more than the required monthly interest payment on your HELOC.
  • Identify all your debts, consolidate them into the HELOC and begin by paying back those with a higher interest rate. By grouping your debts together, not only will you have a better idea of what you owe, but you will also have to make only one monthly payment instead of paying off each debt separately. You will also benefit from having the same interest rate for all of them.
  • Decide on a realistic repayment plan for paying off your debts and stick to it.
  • So that your efforts are not in vain, avoid taking on more debt.

Do not mortgage your future by over-borrowing. Learn more at


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