Banks could raise HELOC interest rates

Banks could raise HELOC interest rates

Total Canadian debt per consumer, excluding mortgages, increased to $25,709 in 2010’s fourth quarter but credit card debt actually declined by almost three per cent from the previous period, according to a TransUnion report. Meanwhile lines of credit, revolving loans and installment loans all increased but the credit card debt dropping is still a surprise for the holiday shopping season.
 
Merix Financial says if Canadians continue to rely more on lines of credit to finance purchases it could affect the mortgage market in an indirect way.
 
“With less competition in home equity credit lines moving forward and activity moving from profitable credit cards to these less profitable credit lines, there will be incentive for the banks to increase the interest rates they charge on home equity lines of credit in the future,” Merix’s director of operations Andrew Kuyper told MortgageBrokerNews.ca.
 
Currently, lines of credit are the second largest consumer debt carried by Canadians after mortgages. It accounts for 42 per cent of outstanding debt by the end of 2010. Albertans and Ontarians are the largest users of LOC, making up more than 57 per cent of all outstanding LOC debt.
3 Comments
  • DanP 2011-02-23 11:59:37 PM
    Consumer reduction of (high cost) credit card use seems to indicate the public is getting the message that debt loads should be reduced. Part of that strategy incompases moving high cost debt to lower cost alternatives. Having the banking industry increase LOC rates to "shore-up" their dwindeling coffers (due to reduced c.c. use) is just wrong and goes against the direction the Feds want to see the Canadian Consumer go in. Now would be a good time for the Feds to tighten some bank regulation screws in favour of the Canadadian consumer.
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  • padarzoli 2011-02-25 4:34:21 AM
    Well said DanP, the only problem is this, more profit the banks are making, the more tax they pay. Our tax-dependent government can not get enough in, they will not oppose to banks to charge on HELOC as much as they want. The contrast is where the problem lies, with credit cards too high and HELOCs too low. Finding a balance though only will make people borrow more. Self control is the answer. The main problem is, reckless individuals are setting the rate for the responsible others, as somebody must pay, nothing is free.
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  • Vancouver Broker 2011-03-04 11:51:27 AM
    Somebody must pay? Padarzoli, I disagree with you. The government will get their tax revenue one way or another, but it doesn't need to force consumers to subsidize already-massively-profitable banks.

    The traditional argument for pricing of debt products isnt related to the lenders need for profit, or the governments need for tax revenue - its been based on the RISK of DEFAULT that the debt product represents. If highly qualified borrowers elect to move out of credit cards in to lines of credit, you might need to see an increase in the price of credit cards to compensate for the increased portfolio risk (i.e. good borrowers out of the picture, leaving less good borrowers paying (or not) the credit card debt).

    Any excuse the big banks give to justify raising prices is just an excuse. Call a cash grab a cash grab.

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