Dangerous Home Equity Lines of Credit

Over the past few years we have heard about how most major banks were frequently offering their clients a combination of a Mortgage and a Home Equity Line of Credit. This trend seemed to only be happening in the big cities like Vancouver, Calgary, and Toronto where property values are larger and seemed to appreciate much quicker than properties in Atlantic Canada Many Canadians began relying on this extra available credit and before too long, found themselves with a Home Equity Line of Credit at its credit limit. As the Line of Credit's balance increases, so do the payments, and many Canadians found themselves making the minimal, interest only, payments. Therefore, the Principal Balance never decreases! When property values in those major cities decreased over the last couple of years, many Canadians found themselves owing 100%, or more, of the value of their property. As a result, some Canadians were unable to sell their homes because they did not even have enough equity left to pay any Realtor's real estate fees.

The other negative impact of having a maxxed out Line of Credit is that it will cause credit bureau credit scores to drop substantially. This makes it even more difficult for the homeowner to refinance and/or consolidate thier Line(s) of Credit into a new mortgage. Lines of Credit do appear on the credit bureau, whereas mortgages do not.

We have started to see a significant increase in this predicament here in Atlantic Canada with many clients finding themslves as risk of loosing their home, or at the very least living from paycheck to paycheck just to keep up with the payments. This makes it nearly impossible to reduce the Line of Credit's balance and improve/increase the credit scores sufficiently to qualify for a new mortgage.

If you are offered a Home Equity Line of Credit, I would recommend you politely say "No Thanks!" If you find yourself with a Home Equity Line of Credit that has a balance that is creeping up to the credit limit, please give us a call as soon as possible, before your credit scores drop too far. We have some really great interest rates that can help keep your new mortgage payment low, while enabling you to pay down the principal balance.