Canadians Fail Basic HELOC Knowledge Test

Alyssa Furtado
by Alyssa Furtado November 23, 2011 / No Comments

Recently, TitlePLUS commissioned Leger Marketing to conduct a poll that probed into Canadian insights regarding  Home Equity Lines of Credits (HELOCs) and the results were astonishing.

A Home Equity Line of Credit (HELOC) is a revolving line of credit that is secured by your home, allowing you to access the equity in your home. The lender sets a maximum amount that the borrower can withdraw. The funds are not advanced up front and the borrower can choose when and up to how much they wish to access (up to the HELOC credit limit). For further explanation, please see our HELOC section.

Currently, just over one third of Canadians have a HELOC mortgage. According to CAAMP, the average Canadian HELOC debt is $102,000. HELOCs represent $124 billion dollars in total indebtedness. Here is what the Leger Marketing poll revealed on how borrowers spent their HELOC funds:

HOW THE FUNDS WERE USED

PERCENTAGE %

Home renovation

37%

Basic living expenses

11%

Vacation

11%

Down payment for an investment property

5%

Children’s education

5%

Business funding

5%

One interesting tidbit was that a quarter of Canadians with home equity lines of credit have never used them.

HELOC hypocrites

The Claim: A majority [59%] of those without a HELOC claim to be confident in their level of HELOC knowledge.

The Reality: Those Canadians averaged a score of 38% when tested on basic knowledge.


The Claim: 79% of those actually with HELOCs claim to be confident in their level of HELOC knowledge.

The Reality: Those people still failed the test with an average score of 43%.

An Explanation:

When it comes to signing on the dotted line, most Canadians were smart and reviewed the documents themselves or with a professional. Of those that reviewed the documents:

55% – Reviewed all documents with a loan officer

33% – Read all the fine print

12% – Consulted a lawyer first

But not everyone read over the documents as one in ten admitted to not reviewing any documents or seeking advice before signing! A HELOC mortgage has the potential to disrupt your credit rating and cause future problems if the borrowers decide to sell or refinance their home. It’s shocking that 11% of HELOC borrowers would take such a risk with possibly their biggest asset.

Surprisingly, the younger generation of Canadians [aged 18 to 34] were the most likely to seek legal advice. Although they were the least likely to actually access their equity.

Sample of the Actual Test Questions:

  • When you pay off and close your home equity line of credit, Will any credit card consolidated under this line of credit be cancelled and made not available for future use?
  • Can having a HELOC negatively impact your ability to take out a loan or mortgage with another financial instition?
  • When you take out a line of credit, does your home become the bank’s security for any credit card debt and other loans you have with that bank?

So fellow Ratehub.ca readers, are you confident in answering those three questions? Whether you are not, it is always best to seek the advice of a mortgage professional such as a Canadian mortgage broker before signing on the dotted line.


categories: Mortgages
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