What homeowners should know before securing their biggest asset for a
TORONTO, Nov. 15, 2011 /CNW/ - More than one third of Canadians (36 per
cent) have a home equity line of credit as a flexible way to borrow money, but
results of a new poll suggest they may be borrowing without knowing
what they're committing to — and too few are seeking expert legal
According to a Leger Marketing poll commissioned by the TitlePLUS
program, three-in-five Canadians (59 per cent) claim to be confident in
their level of knowledge about home equity lines of credit (HELOC),
but when queried most did not understand much about this financing
mechanism. On average, Canadians correctly answered only three of eight
true-or-false questions (38 per cent) that tested their basic knowledge
of how HELOCs work. Those with a HELOC did not fare much better:
Although 79 per cent were quite confident of their level of knowledge,
on average, they correctly responded to only 43 per cent of questions
"A home equity line of credit can give you lower interest rates and
flexible lending terms, but there's more to this arrangement than meets
the eye," said Ray Leclair, LAWPRO's vice president, Public Affairs
(Acting) and a real estate lawyer. "Without understanding all of the
implications of this type of borrowing, consumers could risk their
future credit or run into issues when they sell or refinance their
A popular way to borrow
According to the poll, Canadians who currently have a line of credit
secured by their home have used it to finance major purchases including
home renovations (37 per cent), a car (17 per cent), basic living
expenses (11 per cent), a vacation (11 per cent), a down payment on an
investment property (9 per cent), children's education (5 per cent) and
funding for their business (5 per cent). Interestingly, one quarter of
those with a HELOC haven't used it.
Expert advice vs. reading the fine print
While the majority of those with a secured line of credit took a
cautious approach by reviewing all the loan documents with a loan
officer (55 per cent) and one third (33 per cent) read all the fine
print, only 12 per cent consulted with a lawyer before signing the
agreement. One-in-ten (11 per cent) admitted to not reviewing any
documents or seeking advice before signing.
Interestingly, younger Canadians aged 18 to 34 were most likely to seek
legal advice (23 per cent) yet were the least likely to have accessed
their loans with two in five having never touched the funds. Men when
compared to women were twice as likely (15 per cent to 7 per cent) to
simply sign all loan documents without reviewing; this could be
explained by higher confidence in their level of knowledge about home
equity lines of credit, 15 per cent greater than that of women (65 per
cent vs. 52).
"For most Canadians, your home is your biggest asset. You wouldn't buy
or sell it without consulting a real estate lawyer. Borrowing against
it is just as important because a HELOC is a mortgage with similar
implications; and in some cases, depending on the fine print, a home
equity line of credit can affect your credit rating, your ability to
borrow for other needs, and even your ability to use your credit card
going forward," said Leclair. "Although many people may feel they
understand what they are getting into when they take out a line of
credit, this poll indicates otherwise. That's why - to protect
themselves - consumers should seek expert legal advice before signing
on the dotted line."
Failing the HELOC knowledge test
Despite Canadians' confidence in their knowledge about how their secured
line of credit works, the majority seemed fuzzy on the details.
For example, of those who said they did have a home equity line of
57 per cent did not know that when you take out a HELOC the financial
institution lending the money puts a mortgage on the borrower's home.
58 per cent did not know that taking out a HELOC when they already have
a mortgage on their home means that the lending institution places a
second mortgage on the home, or modifies the original mortgage to
capture all the equity in the home;
Nearly seven-in-ten (69 per cent) did not know that having a HELOC could
negatively affect their credit rating or future loan applications.
"Using your home to secure a loan is a case of 'Borrower Beware'," said
Leclair. "When you use your home as collateral, the bank has legal
rights to your property and you cannot close on a sale of that home
without paying back that loan."
Canadians do not fully understand the implications of this financing
tool - even though the majority feel confident in their level of
knowledge of home equity lines of credit:
83 per cent of survey respondents did not know that when you pay off and
close your home equity line of credit, any credit card consolidated
under this line of credit may be cancelled and not available for future
62 per cent did not know that having a home equity line of credit could
negatively impact your ability to take out a loan or mortgage with
another financial institution.
58 per cent did not know that when you take out a line of credit, your
home becomes the bank's security for any credit card debt, other loans
you have with that bank, or any other loans you have co-signed.
About the survey
The survey was completed by Leger Marketing via their online panel
between October 24 and 26, 2011, with a sample of 1501 Canadians aged
18 or older. A probability sample of the same size would yield a margin
of error of +/- 2.5 per cent, 19 times out of 20.
About LawPRO and TitlePLUS title Insurance
TitlePLUS title insurance is provided by Lawyers' Professional Indemnity
Company (LawPRO), an insurance company that is licensed to provide
professional liability insurance and title insurance in most
jurisdictions across Canada.
TitlePLUS title insurance is the only all-Canadian title insurance
product on the market today. It protects home buyers and mortgage
lenders under the same policy (and for the same premium) from
title-related and other problems that could affect ownership or the
marketability of the property, and covers the legal services provided
by the lawyer closing the purchase.
For further information:
or to schedule an interview with Ray Leclair, please contact: