HELOC pros and cons | Page 2 | General financial discussion | Discussion forum

20 years is 20 years, but I can see that those costs would matter. I only know about people who have bought HELOCs at mortgage initiation or purchase time, so I'm not going to contradict that. Thanks, COIN.
RetirEd

There is a cost to set up a HELOC. The lender needs to have the property appraised to calculate the borrowing limit. Some kind of charge needs to be registered against the property.

Those are identical to what is needed for a regular mortgage. Consequently, there is no additional cost to set up a HELOC at the time one sets up a regular mortgage with the same lender.

Loonie said
Lots of people think they are good with credit; that's why they have so much of it.

Oversimplification is the risk here. For a limited number of people in a limited number of situations, these loans may work out. But they remain risky. One of the risks is especially important right now, namely rising interest rates. Advocates of HELOC tend not to mention that the interest rate is variable, which means that although you could afford it last year or even last month you may not be able to afford it now or next month/year. For that, you are risking your house.

In any event if I have alerted people to think twice and be aware of some of the risks, I've done my job here.

For further info,
https://www.cbc.ca/news/business/heloc-debt-fcac-1.4978987  

Like I said, if you are not good with managing credit, a HELOC is likely not for you. Even the article you point to, as much as it shows the risks involved, it essentially shows that they people that fall into trouble are the very same ones that would likely have trouble with credit cards too, for the same reasons.

As stated in one of the comments to that article, "People aren't dumb [I would add, most]. They understand how credit cards/HELOCS work...they just fail to resist material temptations. "

I am not oversimplifying... at the end of the day, a HELOC is not much different than a credit card, so you need the same discipline to manage it. My simple rule is I do not borrow money for anything I do not have the cash for already (unless it is an emergency), save for a mortgage.

I appreciate that you are highlighting the risks. BUT there are two sides of the same coin... you presented one, I presented the other.

The sad part of this entire discussion (which has been hijacked, by the way...it was about where to park money, not borrow it) is that it reflects how most of us have been brainwashed into buying into this normalization of debt. Governments and banks/lenders have successfully convinced the public that it's normal to carry some kind of debt. Got equity in your house? Get a HELOC and get that 75 inch screen/brand new F150/dream trip to Budapest/grab some bitcoin/etc.! Many toss around the term HELOC like it's completely normal to leverage your home. I think some harsh lessons are going to be learned in the next few years. OK, apologies...soapbox has been dusted off and put back in the soapbox cupboard.

@lifeonanisland -
You have expressed the situation very well. I won't worry that you could be vulnerble to somehting unsuitable.

I don't fault smayer for bringing up the possibility of HELOC. I'm sure he or she was trying to be helpful and add some sort of value to your transactions, For a select few, under specific narrow circumstances, they will make sense. Various people have now expanded upon the pitfalls so that hopefully they will be approached with great caution.

Needless to say, I am not a borrower. I doubt I would ever consider a HELOC.

I am reminded of an anecdote I read a while ago. I think it was in Where Are the Customers' Yachts?, but no longer sure. A bank president takes a visitor up to the top floor of the bank tower, the one with the panoramic views of the city. The banker says, "See all those buildings out there? We own them all." A slight exaggeration perhaps, but what he meant was that the banks hold all your mortgages, HELOCs and consumer debts. You only own what you have fully paid for; until then, you are working for the bank, which holds the cards.

When people complain to me about their finances, I ask them how much they have spent in interest in their lives. They never know although some will say it has been a lot. Occasionally a light bulb appears to glimmer in their eyes.

Low interest rates (globally) are due to trying to stimulate economies, not because they want to increase real estate prices (that's a side effect, just like other assets, e.g. stocks, have also soared in value partly due to cheap cost of money).

Most folks manage to live sustainably, so it clearly can't be govt's or anyone else's fault that only some don't. Having a mortgage for 25 or so years is not "slavery", it's been pretty much the norm for most who buy a house, i.e. you buy a house when you're young and hopefully get rid of the mortgage in your 50s or so.

The same CTV article Statistics Canada says household debt-to-income ratio hit record high in Q4 says the household debt service ratio is 13.84%. Households are spending 13.84% of their disposable income servicing their debt.

Nothing will happen when rates rise. If interest rates double, then debt service will approach 27% and households will just have to learn to live on the remaining 73% of disposable income.

Norman1 said
The same CTV article Statistics Canada says household debt-to-income ratio hit record high in Q4 says the household debt service ratio is 13.84%. Households are spending 13.84% of their disposable income servicing their debt.

Nothing will happen when rates rise. If interest rates double, then debt service will approach 27% and households will just have to learn to live on the remaining 73% of disposable income.  

The 13.84% is based on all service debt of Canada divided by all disposable income of Canada. It’s not a realistic representation of those average family that has a mortgage. If it’s indeed only 14% for the typical family, then we don’t have a housing affordability issue at all.
Reality is mortgage payment eats up a good portion of the pay check….

‘nothing will happen when rates rise’ is the best joke of the day…

Just as good: There won't be hyperinflation from those trillions of dollars the US Federal Reserve pumped into the US economy after 2008!

Most Canadians don't live in overpriced Toronto or Vancouver. Among those who do, quite a few of them have paid off their house and would welcome higher interest rates for more income from their HISA and GIC deposits.

As well, 90%+ of mortgage borrowers have been successfully stress tested against rates of at least 5%.

Credit card borrowers? Not a problem. Credit card interest rates didn't decline during the past two years. So, they don't need to increase to be at pre-pandemic levels.

Do people really believe those with substantial HELOC draws aren't phoning their lender to see if the HELOC balance can be converted to a fixed rate mortgage to lock in today's rates?

As I said, nothing is going to happen and the media will continue to report that the world will end, at least once every ten years.

Just because you can't afford to buy a house is not an indicator that housing prices are too high. The evidence I see is that they are underpriced, i.e. I'll believe the media/gov't that housing is overpriced when houses in my part of the country go For Sale for more than a few minutes and the ultimate selling price is no longer 100's of thousands more than asking.

The 1980s savings and loan crisis (numbers way smaller than today's) was going to Armageddon the USA economy per media, not even close.