Canadian Home Equity Has Been Used To Secure 69% More Debt Than HELOCs Show

Canadians tapped a lot more equity than their home equity line of credit (HELOC) balances show. Office of the Superintendent of Financial Institutions (OSFI) filings show loans secured by homes jumped in October. HELOC debt is the most common type of loan secured by homes, but represents just a small share of the debt. Homeowners have borrowed at least 69% more home equity than HELOC balances show.

Canadian HELOC Debt Reaches $167 Billion

Canadians are comfortable using HELOCs once again, after a brief slowdown. The outstanding balance of HELOC debt reached $166.8 billion in October, up 0.6% ($1 billion) from a month before. The balance is down 4.0% ($7 billion) compared to the same month last year. A bit of a mixed read, but the more recent number is the significant takeaway.

Over the past year, there was a contraction in the amount of HELOC debt borrowed. However, the monthly surge implies that’s now in the past. A few months ago people were paying down their debt. The savings windfall and clearing the balance when selling a home, likely played a role. HELOCs are far from the only tool households have been using to tap home equity, though. 

Canadian HELOC Vs Loans Secured By Housing

The total outstanding of home equity line of credit (HELOC) debt held by institutional lenders, compared to the total of non-business loans secured by residential real estate.

Source: Regulatory Filings, Better Dwelling.

Canadian Loans Secured By Housing Reached $282 Billion

The balance of loans secured against housing for non-business purposes is much bigger. Outstanding credit, which includes HELOC debt, reached $281.9 billion in October. This is up 0.4% ($1.2 billion) from a month before, and roughly the same from last year. Not huge growth in contrast to some areas, but significantly more debt than just HELOCs show.

Canadian HELOC Vs Loans Secured By Housing Growth

The annual percent change in the balance of home equity line of credit (HELOC) held by institutional lenders, compared to the growth of non-business loans secured by residential real estate.

Source: Regulatory Filings, Better Dwelling.

The data is also not the complete number, but only the debt shown in OSFI filings. Since the regulator only has filings for Canadian banks, it isn’t the whole picture. For example, credit unions and non-bank lenders are not included here. Banks are the majority of loans, but far from all loans.

Home Equity Is Securing 69% More Debt Than HELOCs Show

As you might have figured out by now, HELOC debt doesn’t quite show how much home equity was tapped. Non-business loans secured against housing are 69% higher than HELOC balances. This glosses over an additional $115 billion in debt, almost the size of Vancouver’s GDP. That’s a pretty big hole in the picture.

Both segments aren’t growing at a particularly fast rate, but it’s a huge number. Combined with mortgages, the amount of debt secured by housing exceeds GDP. That’s before you add other areas, such as car loans and credit card debt.

Canada’s real estate dependence is running far deeper than just GDP implies. Sure, residential investment is considered a dangerous amount of GDP. But high home prices are also leveraged to help with consumption and make up for the lack of income growth. The longer the market is perceived as risk free, the stronger this dependence becomes.

Defaulting on the debt isn’t the concern, as many might assume is the problem. Generous state protections recently withdrew payment obligations during a period of economic turmoil. It’s hard to see that not becoming the standard going forward. Lenders can’t suffer losses this way, since few borrowers default. The borrowers get to carry the debt whenever they can, plus interest. 

The real issue is the economic slowdown that results from high household debt. US Federal Reserve researchers estimate for every 1 point increase in household debt to GDP, long-term growth falls 0.1 points. Canada has trimmed off a lot of long-term economic growth for a short-term boost over the past few years.

13 Comments

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  • Michael Tran 11 months ago

    If I had a dollar for every person who explained you get to spend the money your home rises by using a HELOC, I’d have more than the GDP of Halifax.

    • Mortgage Guy 11 months ago

      Now imagine how much of this is being used to lend kids the money for a downpayment without proper disclosure of where the funds are coming from?

      They can ban borrowed down payments, but the fact of the matter is they would have no idea how that happened unless they disclose it was borrowed.

  • Van YIMBY 11 months ago

    Every Boomer in Vancouver:
    – pays no property taxes
    – uses HELOC to spend $200k/year in new debt
    – complains it’s quite affordable, young people just need to work harder.

    • Lou Chao 11 months ago

      What’s this about not paying property taxes? That has to be a joke, right?

      • Mortgage Guy 11 months ago

        He’s definitely not. Most provinces will defer property taxes for seniors assuming they can’t afford it.

        In BC, the interest rate is 0.45% on property taxes deferred as well, so every senior with half a brain does it. No income requirement, and with inflation at 4.5% (or even a target of 2%), they dump the liabilities onto everyone else. It’s quite comical people even allow this, especially on multi-million dollar homes.

        To boot, it’s the lowest property tax rate in the country in Vancouver, which supports way higher home prices.

        https://www2.gov.bc.ca/gov/content/taxes/property-taxes/annual-property-tax/tax-deferment-interest-fees

        • SH 11 months ago

          I always wondered, if that BC Boomer tax deferral (evasion) scam were audited, how many occurrences there are of non-payment of back taxes owed after the home was sold. Do municipalities go after Boomer tax cheats as rigourously as the RCMP and CRA go after money-laundering? If so, I bet many of them never pay a dime.

      • SH 11 months ago

        Nope. Not a joke. In BC people over 55 and allowed to legally evade property taxes. I believe it’s the only province where this kind of policy exists. It’s a grotesque injustice against the young, but the young are not the government’s priority. Taxes deferred are supposed to be paid back when the home is sold, but realistically do you think anyone goes after these people?

  • RW 11 months ago

    A wonderful way to avoid paying income taxes. Uh… I hear.

    • Vincent Fornelli 11 months ago

      What does this even mean? You’re borrowing money, so it costs you to draw on the home equity and it’s a loan.

      • RW 11 months ago

        Except if you borrow the money for investments, the interest is tax deductible. Never make an income, but defer it and borrow against assets.

      • AtroubledCanadian 11 months ago

        To add to his point, you want capital gains versus regular income. Paying capital gains taxes is preferable to income taxes, as the rates are drastically lower and you can offset income with losses.

  • Arthur 11 months ago

    The PM and BofC Gov crossed the Rubicon imposing below market interest rates long ago. HELOC borrowers who still haven’t crossed into deep debt yet need to decide whether they or their bank will be ok in a downturn. Personally, I root for the small folks but I won’t be betting against the banks in a battle for survival.

    Typical part of a HELOC agreement you signed:
    We have the right, at any time, to block, suspend, terminate, freeze or otherwise deny access to or use of the credit account or any benefits or privileges to the credit account, all without any reason and without telling you in advance, whether or not we have terminated the Agreement or demanded on the Debt.

  • Heather 11 months ago

    Yes, Boomers can have property tax deferral. When the house or condo is sold, the tax has to be paid.

    Boomers living alone in their house can also check with the city to see if they can have a 25% cut in water, sanitary and solid waste pick up. However, that makes sense because they aren’t using as much as a family or family and rentals.

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