Canadian HELOC Debt Is Accelerating As Interest Rates Rise

Higher interest rates aren’t slowing Canadian homeowners from tapping home equity. OSFI filings show home equity line of credit (HELOC) loan balances jumped in June. Even as interest rates rise, homeowners are accelerating the amount they borrow. It’s unusual, since higher rates are designed to throttle credit, not accelerate borrowing. 

Home Equity Line of Credit (HELOC) Loans

Home equity line of credit (HELOC) loans are a type of variable rate loan secured by your home equity. Borrowers qualify for an amount based on the equity they have, and they’re free to tap the loan when they need it. Since it’s a secured loan, the rate of interest that needs to be paid is typically much lower than an unsecured loan.

HELOCs can be an important tool for tapping home equity when needed. At the same time, any leverage loan can be problematic, especially variable rate ones. Those can become even more dangerous for borrowers when home values fall. Note we said borrowers, not the lenders. HELOC debt requires a significant home equity buffer that generally protects lenders.

There are a lot of loans that are similar to a HELOC that aren’t included. Fixed-term loans secured by home equity are a popular one that would be excluded here. Combined loan plans (CLPs) that marry a HELOC with a mortgage are another important one. The bank regulator has even warned about CLPs separately, so it’s a big issue not covered in this data. Keep that in mind when looking at these massive numbers — the home equity debt is even bigger.

Canadians Owe $171 Billion In HELOC Debt

Canadian HELOC debt is substantial and growing at an unusually fast rate. The outstanding balance hit $171.1 billion in June, up 0.6% (+$1.1 billion) from a month before. Compared to last year, the increase is a whopping 2.9% (+$4.8 billion) higher. It’s absolutely massive growth for the segment. However, it may not seem that way due to the massive growth seen in other segments like mortgages. 

Canadian HELOC Debt

The outstanding balance of Canadian home equity line of credit (HELOC) held by institutions.

Source: OSFI; Better Dwelling.

Canadian HELOC Debt Is Growing At The Fastest Rate Since 2013

Annual growth is the highest rate in nearly a decade. The 2.9% growth in June was the biggest since February 2013, back in the before time. The rise of CLPs has largely reduced the growth rate in this area, so consider this just a fraction of the loans secured by home equity. It’s a lot of debt accumulating with variable interest rates.

Canadian HELOC Growth

The annual growth rate for Canadian HELOC debt.

Source: OSFI; Better Dwelling.

HELOC debt rising is a bit of a contradiction in traditional thought when it comes to credit demand. Rising interest rates typically throttle demand for new credit. The exact opposite is happening when it comes to HELOCs, which means a problem might be brewing.

7 Comments

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  • Ashwin 3 months ago

    Heloc interest rates are still lower than actual inflation. No fuzzy math there…

    • Trader Jim 3 months ago

      The fuzzy math is what asset class would you put it into the capitalize on that? Almost zero are returning inflation, so it makes no sense if you actually plan investments for a living. But I get that everyone repeats this logic, with no clue how it works.

  • J 3 months ago

    Mortgage fraud + snow washing + moving money offshore. A very simple answer to an anomaly in market behaviour.

  • richard stanbridge 3 months ago

    i believe it was michael moore who said that all banks main goal is to separate you from your money. they are not very ethical in how they do that. i believe it was thomas jefferson who said that banks are more dangerous than standing armies. be careful out there.

  • Erik M 3 months ago

    It’s all about the monthly payment on the debt it seems. HELOC debt is cheap in a sense, you only have to pay the interest monthly. $100,000 balance costs $433 monthly at 5.2% interest rate.

    The problem is paying back the principle, I would bet a lot of those carrying huge HELOC balances are expecting to pay it off when they sell or refinance. With the market on a downward trajectory that could snowball into a problem when their equity has diminished so quickly and will likely stay low as the market finds a bottom.

  • Michael 3 months ago

    Daniel’s HELOC debt picture commentary is eye opening and concerning and leads one to believe that when this finally breaks, it will break hard and fast and will not end well for many. Debt is like smoking, at first it feels good, then it’s hard to quit, and even though it may take a while, in the end, it will most likely contribute greatly to your demise.

  • Steve 3 months ago

    Helocs are one of the most evil things ever invented to keep the population forever in debt and impoverished

Comments are closed.