Canadian homeowners with home equity lines of credit (HELOCs) are facing a significant increase in their minimum monthly payments, according to a recent report by the CMHC. This news comes as interest rates continue to climb, putting pressure on household budgets.
The Data
- The average HELOC holder with a balance now owes $948 per month, a staggering 87% increase from $505 per month in just two years (Q1 2022).
- This sharp rise is likely a direct result of increased interest rates. Unlike fixed-rate mortgages, most HELOCs are variable rate loans, meaning their interest rates fluctuate with the Bank of Canada's overnight rate.
- While the total HELOC debt in Canada hasn't seen a major upswing in recent years, those who carry existing balances are feeling the brunt of higher interest charges translating to significantly larger minimum payments.
Impact on Borrowers
- An additional $440 per month in minimum payments can significantly strain household finances.
- It's crucial for HELOC borrowers to understand their minimum payment obligations and factor in potential interest rate increases when budgeting.
- Failing to meet minimum payments can lead to serious consequences, including credit score reduction, credit limit restrictions, or even lender repossession of the property.
What You Can Do
- Review your HELOC agreement: Familiarize yourself with your specific interest rate terms and minimum payment requirements.
- Budget for higher payments: Anticipate potential interest rate hikes and adjust your budget accordingly to avoid financial strain.
- Explore options: Consider consulting a financial advisor to discuss debt management strategies or explore refinancing options if fixed-rate financing would be more manageable.
Real Estate Experts
At Coldwell Banker Horizon Realty, we understand the importance of responsible financial planning, especially when it comes to homeownership. Our experienced agents can help you navigate your financing options, including HELOCs, and ensure you're making informed decisions for your financial future.
Contact us today for a consultation and explore ways to manage your HELOC effectively.
Source: CMHC
