Canadians and the Secured Line of Credit Test

Having or getting a ‘secured line of credit’ has become a very trendy term these days. With interest rates so low and the government imposing new rules to actually encourage this type of borrowing, it’s no wonder why. Secured lines of credit can be very beneficial, and are the answer many homeowners have been looking for. But, results from a poll recently done by Leger Marketing were released on Tuesday – and the results are enough to make any Canadian sit up and take notice. Especially if they have a secured line of credit.
One of the first things that was so shocking about the poll results was how lightly Canadians take their secured lines of credit. When first applying and being approved for their HELOC, only 55% of individuals actually went over the loan documents with a loan officer; 33% of participants said that they took the time to read the fine print; while only 12% took the documents to a lawyer to have them reviewed. A minority of respondents said that they neither looked over the documents nor had them reviewed by anyone before signing their loan papers. That minority is only 11%, but still a large amount of people that are so flippantly signing financial papers.
So if Canadians as a whole got into their secured lines of credit rather casually, what do they do with them once they’re actually set up? Among survey respondents, 37% used a HELOC for home renovations while 17% used the money to purchase a vehicle. 11% of individuals surveyed used the money to go on vacation, and 5% used the line of credit to pay for a child’s education. While these are all very worthy reasons to take out a secured line of credit, there’s a shocking statistic here, too. A whopping 25% of people surveyed had taken out a secured line of credit, but hadn’t used it at all.
While that may seem like a good thing, it can actually be quite dangerous. After all, you never want to go into more debt than you need, and if you don’t need the money for anything, maybe you should reconsider taking on that debt. Especially when you consider that taking on debt that you don’t fully understand could affect your future credit rating, or your ability to sell your home. The problem is that most Canadians simply don’t understand what a secured line of credit is. They may not know that they’re actually taking out a second mortgage on their home, or that credit cards consolidated under that debt could be closed upon closing the secured line of credit account.
The survey certainly doesn’t mean that we should jump to conclusions about secured lines of credit being bad things, They’re certainly not, they do help thousands of homeowners every single day in Canada, and now is also a really great time to get one because rates are so low. Still, before you enter into any agreement regarding your home and any mortgages or loans taken out against it, you need to sit down with a qualified mortgage broker and get good advice customized for your situation. More importantly, while there you need to make absolutely sure that you fully understand what a secured line of credit is, and how it could affect your future.