{"id":951095,"date":"2026-10-29T21:32:11","date_gmt":"2026-10-29T21:32:11","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/951095\/"},"modified":"2026-10-29T21:32:11","modified_gmt":"2026-10-29T21:32:11","slug":"as-economic-storm-clouds-gather-remember-lines-of-credit-are-fair-weather-friends","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/951095\/","title":{"rendered":"As economic storm clouds gather, remember: Lines of credit are fair-weather friends"},"content":{"rendered":"

Open this photo in gallery:<\/a><\/p>\n

Canada is not in a recession, but the forecast isn\u2019t great. If you owe money on a line of credit, reducing or paying off that balance is a good way to shore up your personal economy.Mark Blinch\/The Canadian Press<\/p>\n

The Bank of Canada just raised interest rates, and the job market is sluggish. It\u2019s the kind of environment where it makes sense to review your line of credit balance, if you have one.<\/p>\n

Lines of credit are what I call fair-weather friends. When interest rates are low and the economy is firing on all cylinders, they can be a cheap and flexible way to borrow. But when rates are heading up and financial headlines start to sound concerning, beware. <\/p>\n

Let\u2019s talk about the good first. A line of credit works somewhat like a credit card. You take out the amount you need, up to a set limit, and pay interest only on what you borrow. Credit frees up as you repay.<\/p>\n

But interest rates on lines of credit are generally much lower than those you\u2019d pay on credit cards. And lines of credit backed by home equity, known as home-equity lines of credit or HELOCs, often offer interest rates that are lower than those available even on personal loans. <\/p>\n

The perennial trap with lines of credit even in good times is that they usually allow borrowers to make interest-only payments. For many people, that quickly becomes a slippery slope into unmanageable debt.<\/p>\n

Here, though, I want to talk about the dangers of lines of credit when the going gets tough. The first thing to know is that lines of credit typically have variable rates. When the Bank of Canada hikes its trend-setting policy rate, as it did on Wednesday<\/a>, rates on lines of credit quickly mirror those movements. <\/p>\n

Today, the average Canadian with a HELOC balance owes just under $60,000. With a competitive 4.95-per-cent interest rate on that balance, a single central bank rate hike of a quarter of a percentage point would increase the interest payment by about $12 a month. <\/p>\n

That may not seem much, but when central banks start raising rates, they rarely roll out a single hike. Two, three or more rate increases over the span of a few months can significantly drive up the size of your line of credit repayments, if you have a large balance. <\/p>\n

Then there\u2019s something very few people, in my experience, know about lines of credit. Lenders can often lower credit limits or ask you to repay what you owe on short notice. <\/p>\n

This isn\u2019t common, but it\u2019s not a purely theoretical scenario. I\u2019ve been reporting on personal finance for about a decade now, and I\u2019ve seen this happen a handful of times (and remember, we only hear about it when a borrower decides to tell a journalist about it).<\/p>\n

When do banks tend to call in credit lines? Sometimes they\u2019re worried about an individual borrower\u2019s risk profile. Other times, it has to do with what\u2019s happening in the broader economy. Lenders can get nervous about large lines of credit debts during economic downturns, when unemployment is climbing or property values are falling.<\/p>\n

That\u2019s why it\u2019s never a good idea to treat a line of credit as your emergency fund. It could shrink when you need it most, or you could be asked to repay what you borrowed when you can least afford it.<\/p>\n

Of course, Canada is not in a recession right now. The economy, so far, continues to limp along. But the forecast isn\u2019t great, and the Bank of Canada is expected to roll out several more rate hikes in the coming months. If you owe money on a line of credit, reducing or paying off that balance is a good way to shore up your personal economy.<\/p>\n

Subscribe to the On Money newsletter<\/p>\n

Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for On Money here<\/a>.<\/p>\n

Erica\u2019s personal finance reading list<\/p>\n

The Iran war is coming for your winter heating bill<\/a><\/p>\n

High diesel prices are about to hurt consumers beyond just pain at the pump, writes Global News\u2019 Uday Rana. Households who rely on heating oil, which has a composition similar to diesel fuel, are likely in for big bills.<\/p>\n

Chart of the day<\/p>\n

As this chart shows<\/a>, 4\u00bd years on, the housing correction is an Ontario and B.C. story.<\/p>\n<\/p>\n

Today\u2019s financial tool<\/p>\n

The Measure of a Plan, a Canadian financial literacy website, has been around for years. But its Savings Goal Solver<\/a> remains hands down my favourite tool for back-of-the-envelope calculations about how much to save for retirement and other financial targets. I like the ability to input a variety of variables, from monthly contributions through timelines to an expected annual rate of return. <\/p>\n","protected":false},"excerpt":{"rendered":"Open this photo in gallery: Canada is not in a recession, but the forecast isn\u2019t great. If you…\n","protected":false},"author":2,"featured_media":951096,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[45,49,48,46,73504,1412,73501,131,73507,73502,73505,73506,73503],"class_list":["post-951095","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-ca","tag-canada","tag-economy","tag-high-interest-saving","tag-newsletter","tag-onmoneynewsletter","tag-personal-finance","tag-personal-finance-advice-canada","tag-personal-finance-canada","tag-personal-finance-newsletter","tag-personal-finance-planning","tag-saving-strategy"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/951095","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=951095"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/951095\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/951096"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=951095"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=951095"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=951095"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}