Canada Raises Interest Rates and Canadians Took Out $2 Billion In HELOC Debt Over Just 28 Days!

Better dwelling reads
APRIL 27, 2022
Canadian interest rates are on the rise and households apparently took that as a warning to borrow as much as possible. Filings with the Office of the Superintendent of Financial Institutions (OSFI) show home equity line of credit balances surged higher in February. Over 28 days, Canadians borrowed $2 billion more in HELOC debt — the most for a month since 2012.

Canadians Owe $168.5 Billion In HELOC Debt
Canadian households have been tapering on their HELOC borrowing but they’re back with a vengeance. The balance hit $168.5 billion in February, up 1.2% (2.0 billion) from the month before. Households now owe 1.4% ($2.3 billion) more in HELOC debt than they did a year ago. Balances haven’t been this high since December 2020, reversing 13 months of chipping away at the balance in just one month.

Canadian HELOC Debt Is Rising At The Fastest Rate Since 2021
HELOC balances grew at the fastest annual rate in nearly a decade. Growth in February might sound small at 1.4%, but Canada hasn’t seen the credit segment rise this fast since May 2013. It might not sound like much, but this is an unusually fast increase for a very large segment of debt with substantial interest costs. But that’s not what’s interesting, it’s what happened in just February that is.

Canadians Borrowed $2 Billion More In HELOC Debt Over 28 Days
The biggest takeaway from the February HELOC numbers is the mindblowing growth seen over just 28 days. An increase of $2 billion in the month is the largest single-month increase since 2012. Excluding 2009, it’s only occurred for 10 months in the past 386 months. For some reason 2009 seems to have been a year everyone was in the mood to take out an exceptional amount of cash from their home. The monthly increase also represented 87% of the net increase of HELOC debt in the past 12-months.

Unclear why Canadians all of a sudden needed $2 billion in HELOC debt over just 28 days in February. The RRSP cutoff for this tax cycle was due in February, which may have led people to borrow home equity to top that off. It was also a month before the rate hikes, so it’s possible some cash may have been allocated to down payments to secure financing and lock in purchases before rate hikes. It’s anyone’s guess, but it is surprising to see borrowers dive into debt right after the central bank tells them to pay it down.