With Attention Upon the Hot Canadian Real Estate Market, Have We Ignored The Borrowing Habits of the Canadian Consumer?

The Mortgage Professionals of Canada released their Annual State of the Residential Mortgage Market in Canada + Significant Statistics 2016 which outlines the current mortgage climate in Canada. It was determined that 1.91 million Canadians currently have Home Equity Lines of Credits against their properties. Although the report covers many facts about Canadians and the mortgage trends and tendencies, the focus is upon Home Equity Lines of Credit (HELOC) for this post.

The better we understand the needs of Canadian borrowers, the better we can serve their needs and ensure that we are clear with the direction of their lending products and the industry as a whole; thus separating Mortgage Professionals from others in the industry.

The increase of HELOCs among Canadian homeowners is interesting for reasons listed below:

HELOCS are appealing due to the low interest rates:

The National Mortgage Broker Association of Canada reported that 1.91 million Canadians currently have a Home Equity Line of Credit (HELOC) against their properties. Since 2008, mortgage rates have maintained consistent with respect to record breaking lows. Upon the surface level, to the consumers, this has proven to be perceived as the ideal time to borrow funds against your property.

Many Canadians are using their HELOCS for home renovations (31%), education and weddings for children (9%), debt consolidation (28%) and other purchases with the intent of improving their current quality of life (31%). There is solace in the fact that many Canadians are not obtaining funds because they are cash poor. Even with that, should the focus convert from the heat of the real estate market to the amount of debt Canadian homeowners have obtained?

Should Canadians Fear A Crash in the Future?

The Canadian government has addressed the country’s housing through the update in guidelines with respect to borrowing to purchase a property. For example, the Stress Test.

To many this may appear as if there are similarities to what transpired in the US regardless of the change in guidelines. Granted, there are some points of concern. Prices of real estate have exploded, Canadians are borrowing at low mortgage rates and could face issues with repayment should mortgage rates raise. If you have yet to see the film ‘The Big Short’, I encourage you to watch it because it describes the opportunity that was created through Adjustable Rate Mortgages and how America fell into the financial crash that it did. I give it 4 and a half stars.

What Should Canadians Expect Moving Forward?

With regards to moving forward, there is no secret formula to ensure that Canadian families are protected. The only 'fool proof' method to protect your family is to maintain minimal debt and remain intentional about paying off your mortgages. It will always be easier to obtain the debt that provides a lifestyle often perceived as necessary than it is to repay the loans. Keep in mind, it is always rewarding to protect your family by going against the grain and keep borrowing as short and as low as possible.