More than one third of Canadians have a home equity line of credit as a flexible way to borrow money, but results of a new poll suggest they may be borrowing without knowing what they’re committing to — and too few are seeking expert legal advice.
According to a Leger Marketing poll commissioned by the TitlePLUS program, three-in-five Canadians claim to be confident in their level of knowledge about home equity lines of credit (HELOC), but when queried most did not understand much about this financing mechanism. On average, Canadians correctly answered only three of eight true-or-false questions that tested their basic knowledge of how HELOCs work. Those with a HELOC did not fare much better: Although 79% were quite confident of their level of knowledge, on average, they correctly responded to only 43% of questions asked.
“A home equity line of credit can give you lower interest rates and flexible lending terms, but there’s more to this arrangement than meets the eye,” said Ray Leclair, LAWPRO’s vice president, Public Affairs (Acting) and a real estate lawyer. “Without understanding all of the implications of this type of borrowing, consumers could risk their future credit or run into issues when they sell or refinance their home.”
According to the poll, Canadians who currently have a line of credit secured by their home have used it to finance major purchases including home renovations (37%), a car (17%), basic living expenses (11%), a vacation (11%), a down payment on an investment property (9%), children’s education (5%) and funding for their business (5%). Interestingly, one quarter of those with a HELOC haven’t used it.
While the majority of those with a secured line of credit took a cautious approach by reviewing all the loan documents with a loan officer (55%) and one third (33%) read all the fine print, only 12% consulted with a lawyer before signing the agreement. One-in-10 admitted to not reviewing any documents or seeking advice before signing.
“For most Canadians, your home is your biggest asset. You wouldn’t buy or sell it without consulting a real estate lawyer. Borrowing against it is just as important because a HELOC is a mortgage with similar implications; and in some cases, depending on the fine print, a home equity line of credit can affect your credit rating, your ability to borrow for other needs, and even your ability to use your credit card going forward,” said Leclair. “Although many people may feel they understand what they are getting into when they take out a line of credit, this poll indicates otherwise. That’s why – to protect themselves – consumers should seek expert legal advice before signing on the dotted line.”
The survey was completed by Leger Marketing via their online panel between October 24 and 26, with a sample of 1,501 Canadians aged 18 or older. A probability sample of the same size would yield a margin of error of +/- 2.5%, 19 times out of 20.