Canada

Canadian Homeowners Pull Back On Home Equity Borrowing, Pay Down Debts

Canadians have suddenly stopped borrowing their home equity, and are lowering exposure. At least a little, when it comes to personal loans. Office of the Superintendent of Financial Institutions (OSFI) filings show the balance of loans secured by residential real estate fell in April. The dip was one of the largest single-month drops over the past eight years of data.

Loans Secured By Real Estate

Loans secured by real estate is when home equity used to secure credit. The majority of the balance is home equity lines of credit (HELOC), which are a type of revolving credit. Homeowners can continue to tap their equity, pay it off, and tap it again. A small segment of the debt in this segment is home equity loans, where a one-time lump sum payment is given. Once these are paid off, the borrower would need to re-apply for debt.

Canadian Owe Over $307 Billion In Debt Secured By Home Equity

The total balance of loans secured by real estate is down on the month, making a minor advance from last year. The total balance reached $307.75 billion in April, down 0.51% from last year. This represents an increase of 2.27% compared to the same month last year. This is the seventh largest single month drop over the past 8 years. Even more interesting is this was due entirely to personal borrowing falling. A little different, but the same concept. Home equity is used to secure a loan.

Total Loans Secured With Residential Real Estate

The total of personal and business loans, secured with residential real estate.

Source: Regulatory Filings, Better Dwelling.

Most Debt Secured By Home Equity Is For Personal Loans

The majority of loans secured by real estate are for personal purposes. Personal loans represented $270.50 billion of the balance in April, down 0.61% from a month before. This works out to an increase of 0.79% compared to the same month last year. The monthly decline was the third largest for this segment, over the past 8 years.

Personal Loans Secured With Residential Real Estate

The total of personal loans, secured with residential real estate.

Source: Regulatory Filings, Better Dwelling.

People Are Rapidly Tapping Home Equity For Business Expenses

Business loans secured by real estate are booming in growth, and represent the rest of the total. The balance reached $37.25 billion in April, up 0.25% from the month before. His works out to a huge increase of 14.46% compared to the same month last year. The trend of accelerated growth began in February.

Business Loans Secured With Residential Real Estate

The total of business loans, secured with residential real estate.

Source: Regulatory Filings, Better Dwelling.

There’s a mixed read on what’s happening, since debt growth means different things to different observers. Lower debt levels are often a good thing, since it means households can more easily absorb shock. At the same time, home equity has been fueling a significant amount of consumer spending. If people stop using their homes as ATMs, the economy has a little more ground it needs to make up for growth.

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9 Comments

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  • Roger evans 3 months ago

    Liberals are stacking debt why not let the citizens pile on some more.
    Somewhere down the line the idea of being responsible for what u owe has slipped away.
    Debt needs to be paid down for years not months.

    • Marc 3 months ago

      No need to make everything political, unless discussing policy. Liberals aren’t forcing people to borrow more. All parties but the NDP actually wanted to expand credit capacity for housing, so it’s a dishonest attack to single them out.

      • Roger 3 months ago

        They couldn’t run a hot dog stand

      • Roger evans 3 months ago

        The Liberals won the 2015 election on a platform that promised annual deficits of no more than $10 billion and to return to balance by 2019.
        office, the Liberals abandoned the pledge and argued even larger deficit-driven investments were needed to improve Canada’s long-term economic growth.
        They couldn’t run a hotdog stand.

  • Marc 3 months ago

    No condo pre-sales, no need to borrow your house’s debt for leverage.

    • William P 3 months ago

      But many down payments in May, so maybe some leverage?

      • neo 3 months ago

        I thought starting today you couldn’t use a HELOC as a downpayment as part of the new CMHC rules?

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