Homeowners with ballooning household debt levels may be well-advised to consider consolidating their existing non-mortgage debt under a secured home equity line of credit in order to take advantage of low interest rates while balancing their household budget.
A recently released report from the Organization for Economic Co-operation and Development (OECD) flagged growing household debt as an issue of concern for Canada’s economy. “Owing to the lowering of interest rates and a still well-functioning financial system, household indebtedness continued to rise throughout the recession and is now near historical highs,” according to the OECD.
The OECD report warns that “if households continue to borrow at the same pace as they did recently and interest rates increase as expected, by mid-2012 about 7.5 per cent of Canadian households could have so much debt that they would be ‘financially vulnerable,’ up from 6.1 per cent in 2009.” Significantly, the OECD notes that, “(t)his group is likely to include many young, first-time home buyers that have been profiting from low mortgage rates.”
Meanwhile, the Globe and Mail reports that a Statistics Canada analysis of household debt shows that “the net worth of Canadian families fell in the second quarter for the first time since the depths of the recession, pushed down [primarily] by declining stock prices.”
Commenting on the StatsCan report, Toronto-Dominion Bank economist Diana Petramala notes that, “Weak asset growth in combination with still strong liability growth will likely have households feeling buried under more debt than they ever have.” According to Ms. Pertamala’s analysis, “Households will likely feel a need to constrain spending and repair the damage done to their balance sheets.”
As a significant portion of non-mortgage consumer indebtedness consists of credit card debt and unsecured loans that have a relatively high interest rate, debt consolidation using a lower-interest secured home equity line of credit to pay down non-mortgage debt will yield interest savings that can be a first step in repairing household budgets.
