“I know people in my own neighborhood that funded a 3 week trip to Europe for four people through a HELOC this spring.”

“I know people in my own neighborhood that funded a 3 week trip to Europe for four people through a HELOC this spring. Can you imagine how long it would have taken to *save* for that trip with all the other expenses they have going with a family of four? It would have taken them YEARS. In this instance, though, the HELOC money was akin to winning the lottery, and yes, they were far less prudent with the spending. I doubt that it occurs to them that they are just amortizing that trip to Europe over the next couple of decades or so.
People tend to be much, much more cautious with money they’ve actually earned, rather than have fall into their lapsfrom the HELOC gods, so to speak.”

Told-you-so at VREAA 11 Jun 2012 8:47am

29 responses to ““I know people in my own neighborhood that funded a 3 week trip to Europe for four people through a HELOC this spring.”

  1. Dimitri Tishchenko

    I read an article recently that talked about credit card debt decline in Canada. I wonder if financial advisers around the country are urging people to pay down their credit card debt with HELOCs.

  2. Ralph Cramdown

    Using a HELOC to pay for a vacation is foolish. Instead, you could go to RBC and borrow up to $40k for six months, INTEREST FREE and unsecured. Why pay interest if you don’t have to?

  3. yltnboomerang

    It’s official, Carney has picked his scapegoat for

    “…Already debt-burdened households would begin defaulting on their mortgages, banks would start tightening their lending, jobs would be lost and the hot housing market would go into the deep freeze — as fewer people would be able to buy.”

    http://business.financialpost.com/2012/06/14/canadians-be-warned-your-finances-could-soon-get-a-big-shock/

    • The article says interest rates here would rise if the European crisis deepened. I thought the crisis meant they would stay low. Can anyone explain?

      • interest rates = overnight rate + term premium + credit premium

        For example, most variable rates are prime +/- discount. The discount can (and has) become a “prime +”. Even the definition of prime is fluid. It used to be Bank of Canada plus 1.75 until December 2008 when the banks decided to change it to BOC + 2.00. That can happen any time.

        The same basic idea works in 5yr mortgages.

      • Interest rates are the net, customers are the fish. Drop the net, fish swim in. Guess what happens next?

        I think that as profitability slips at Canadian banks, they will respond by raising interest rates. They’ll have nothing to lose. When lending dries up, so does the competition to lend. This is par for the course. It happened in the early ’90’s, and it’s happening in Australia right now.

  4. yltnboomerang

    EUROPE! (hit post too early)

  5. I funded a Europe trip for 6 people this spring and didn’t need any loaned money for that. Just the money saved from the difference between renting and “owning”.

    • awww snap!

      My last trip was funded by “property”, just not the Vancouver kind.

    • “Just the money saved…”

      Uh? Money saved ? what’s that? what do you mean by saving money? I’ve never heard my friends, coworkers, or family talk about saving money. Must be a thing of the past or something like that. 😉

  6. And this is the type of thing that mortgage brokers and banks won’t let happen going forward. You can trust them; HELOCs are for investment purposes only, not for mindless spending, they said as much themselves.

  7. This is so similar to our experience in California that it’s not even funny.

    In 2005 we knew of some folks who used their house ATM to fund some landscaping. Total bill? $100,000. Yes, $100k!

    In normal times, without HELOCs, very few people would be able to do that. And fewer still would want to do that.

  8. HELOCs cloud people’s minds. They think that because it is supposedly their “equity”, that it isn’t the same as putting it on a credit card. A HELOC is still borrowing, with interest. Unless you have very concrete plans to sell the home soon, realize that equity (which is hopefully really there) and pay off the HELOC, it is just borrowing money from a bank to pay for a vacation. The interest rate is better than a credit card, but that’s about it.

  9. vreaa, maybe you could headline this one: http://vancouvercondo.info/2012/06/why-you-shouldnt-demand-lower-prices.html#comment-160893

    The weather has been brutal this year (and last year too). June, the coldest on record so far, has been renamed to Junuary.
    I am hearing more and more people complaining about the cold and making plans to move to warmer climates.

    Terrible weather + overpriced real estate = BPOE??? No way!

    • hmmm, the link doesn’t work. It was a comment by gordholio:

      In other news, this is now officially the coldest, crappiest June on record. The average daily mean temp thus far has been a frigid 13.2 degrees, a couple degrees colder than last year’s already dismal June.

      http://www.vancouversun.com/travel/June+pace+record+cold/6778531/story.html

      Interesting. A lot of reader comments echoing the same thoughts: Increasingly lousy weather, brutal housing prices, high cost of living across the board – why the heck do I live here?

      Nevertheless, expect the GVREB to grab onto the “bad weather” lifeline as soon as possible.

      (emphasis mine)

    • One comment still awaiting moderation after 7 hours. Is it that one link in the post?

  10. Considering the energy the solar system is moving into alignment to receive. Going into extreme debt to live it up a little (or a lot), turns out to be a reasonable decision.

    • haha, the best part of VREAA lately is watching your posts get absolutely no replies whatsoever as people continually wonder, what the hell you are posting about. (except this reply! 🙂

  11. HELOCs are a horrible idea.
    There ought to be a cap of 50K for any residence, regardless of the amount of equity.

  12. HELOCs are a great idea if you are nearing the end of your life on this Earth.

  13. HELOCs are a fabulous idea for extracting funds before the equity atm goes bust.

  14. HELOCs are a great idea for keeping up with the Jones’s

    • h-g-f-g-t … hmm … meanwhile on shrinkage_watch … the race is on – nobel prize vs van median sfh …

      STOCKHOLM—The Nobel Foundation, under pressure to cut costs following sluggish returns on capital in recent years, is slashing the value of its prestigious prizes for the first time in 63 years while also looking to trim in other areas, such as expenses related to its annual banquet. …

      Winners of the 2012 Nobel Prizes will be paid 8 million Swedish kronor, or about $1.1 million, representing a 20% decline from the 10 million, or $1.4 million, paid out last year. …

      In addition to cutting prize money, organizers—who currently operate on about a $17 million annual budget–will target other expenses, including administration and festivity costs. Mr. Heikensten said negotiations with suppliers to the Nobel banquet, held in Stockholm in December each year, in order to lower costs are under way. …

      Mr. Heikensten said the Nobel Foundation expects to see a modest return on capital in coming years, and is tweaking its investment strategy so that 50% of the capital is invested in equity, 20% in fixed-income securities and 30% in alternatives, such as real estate.

      http://tinyurl.com/7984cw6

  15. @jesse,

    You’re referring to definition #3, I take it? I’ll take my European vacation without decades of interest payments any day, thank you. 🙂

    @formula1

    You sound unusually cogent today. What’s up?

  16. Good to be out

    I funded my trip to Europe last year with proceeds of my 2011 house sale.

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