Speech by FCAC Commissioner Lucie Tedesco at press conference for the release of the report: Home Equity Lines of Credit: Market Trends and Consumer Issues
June 7, 2017
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Good morning everyone.
My name is Lucie Tedesco.
I am the Commissioner of the Financial Consumer Agency of Canada, which plays a lead role in financial consumer protection in this country.
Thank you for being here for the release of the Agency’s latest research report, Home Equity Lines of Credit: Market Trends and Consumer Issues.
Home equity lines of credit, or HELOCs, are the largest and most important form of non-mortgage consumer debt in Canada.
The HELOC market has expanded dramatically over the last 15 years.
During this same period, the amount of debt carried by the average Canadian household has likewise grown dramatically.
It is fair to say that, by making it easier for Canadians to borrow, HELOCs have contributed to this growth in household debt.
FCAC has also observed a trend towards selling HELOCs under a new and more complex mortgage product called a readvanceable mortgage.
In recent years, lenders have been strongly encouraging consumers to use readvanceable mortgages to finance their homes.
The number of Canadians with a readvanceable mortgage has increased by 40 percent over the past five years.
This represents an important shift in the way Canadians are financing home purchases.
Readvanceable mortgages combine HELOCs with term mortgages and, in some cases, other banking services and credit products.
These other credit products can include personal and business loans, chequing accounts and credit cards.
They are all secured by a lien on the borrower’s home.
Low interest rates.
Flexible repayment terms.
These features are among HELOCs’ most notable consumer benefits.
Consumers who have a relatively high level of financial knowledge and discipline are positioned to make the most of their readvanceable mortgage—for instance, by accessing extra funds to diversify and grow their wealth.
At the same time, the flexible repayment terms and convenient access to large amounts of credit can pose risks to consumers.
They may encourage some consumers to over-borrow, using their HELOCs to live beyond their means and accumulating more debt than they can ultimately afford.
Consumers carrying high levels of debt are more vulnerable to the impact of unexpected events, such as the loss of employment.
They are also more vulnerable to economic shocks—a recession or an interest rate hike.
Because HELOCs enable consumers to borrow large sums of money against their home equity, with little or no obligation to repay the principal in a timely matter, they lead some borrowers to develop less than ideal repayment practices.
In fact, 25 percent of HELOC borrowers pay only the monthly interest or minimum payment on their principal.
At a time when consumers are carrying record amounts of debt, the persistence of HELOC debt may put further stress on the financial well-being of Canadian households.
Shopping for a mortgage is not something most of us do every day.
Moreover, mortgages in general are complex and difficult for many consumers to understand.
Readvanceable mortgages—including the risks associated with HELOCs—can be even more complicated to understand.
FCAC believes that many consumers would benefit from more information and clearer information about how to avoid some of the pitfalls and hazards associated with HELOCs and readvanceable mortgages.
It is these consumers who are top of mind for our Agency.
We need to improve the information consumers receive for HELOCs and readvanceable mortgages.
We also need to develop new material to address new and emerging products and services.
FCAC, lenders and other sources of financial consumer information—all of us have a responsibility and a role to play in helping consumers navigate the complexities of this mortgage option.
Members of the media and everyone present, I hope you will help FCAC address the challenge at hand.
With these latest research findings and the public discussions that you can generate with your reporting, we can help Canadians become informed, astute managers of their own finances.
To that end, I now invite you to ask questions.
Richard Bilodeau, FCAC’s Director of the Supervision and Promotion Branch, and I are here to provide answers.
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