Inflation was hotter and more widespread than expected in March, figures released Tuesday showed, leading economists to predict that another strong reading in April could all but solidify an interest-rate hike in July.

Statistics Canada said the annual inflation jumped to a 2½-year high of 3.3% in March, well above economist expectations for 2.8%. Core inflation — which factors out volatile items such as energy and food prices — rose 1.7%, compared with an expected 1.2%.

The figures show prices are rising not only faster than expected, but also affecting Canadian wallets beyond the gas pumps and grocery stores. That puts pressure on the Bank of Canada, especially given its target inflation range is 2%.

“We were already expecting the Bank of Canada to tighten rates in July, but the March numbers were a shocker,” said Douglas Porter, deputy chief economist at BMO Capital Markets. “This solidifies our forecast of a July rate increase.”

Tuesday’s numbers come less than a week after the Bank of Canada raised its forecast for inflation this year, citing rising energy prices. Inflation in March was also a big leap from February, when the headline number was 2.2% and the core rate was 0.9%.

Gasoline prices were one of the main reasons for the inflation surge, with prices up 18.9% from a year earlier. The strong uptick coincides with rising oil prices in the wake of unrest in North Africa and the Middle East.

The figures helped push the Canadian dollar to its biggest advance against its U.S. counterpart in two months, surging to $1.0457.

Mr. Porter said the Bank of Canada’s next policy meeting, to be held on May 31, will signal whether the Bank of Canada will move to hike rates in July.

“They’ll have strong wording hinting at an increase,” he said, adding such a move is likely if April turns out to be another month of strong inflation — which he expects to be the case.

Economists will now be paying attention to April numbers and, in particular, to core inflation.

“The Bank of Canada will get one more CPI report before their next interest-rate decision on May 31, to assess whether this was a one-off fluke or the start of a new troubling trend,” Mr. Porter said. “Suffice it to say that the bank won’t be comfortable keeping rates on hold beyond the next meeting if this is not a fluke.”

The bank last raised its interest rate in September, when it moved its benchmark number from 0.75% to 1%.

But while the strong inflation data surprised many industry watchers, economist David Rosenberg labelled the inflation fears “uncalled for.”

In a note to investors about inflation in the United States, Mr. Rosenberg, the bearish chief economist and strategist at Gluskin Sheff + Associates, said inflation targets were unlikely to meet the lofty expectations of most economists.

“Whenever we go through one of these commodity spasms, household inflation expectations take off,” he said. “But this has proven to have been a great contrary signal each and every time.”

In the United States, fears over rising fuel and food prices have led some economists to predict inflation levels in that country could top 5%, especially given the U.S. Federal Reserve is not expected to boost its benchmark interest rate this year.

U.S. inflation in March was up 2.7% year over year, according to the consumer price index. Consumers’ one-year inflation expectation was left unchanged at 4.6% after numbers were released earlier in April.

Mr. Rosenberg, however, said history shows inflation is unlikely to hit those kind of levels.

“In periods when inflation expectations breach 6%, as is now the case, inflation has always receded in the next year and by an average of 300 basis points,” he said.

The latter two years showed just how volatility in non-core items can disrupt inflation. The summer of 2008 saw economists predicting inflation levels of nearly 8%, just as oil pushed US$145 a barrel.

“A year later, the inflation rate was flirting with the 0% threshold,” Mr. Rosenberg said http://business.financialpost.com/2011/04/19/it-started-with-energy-now-inflation-has-come-home/

Let’s just say you owed somebody a ton of money but there was no legal way to force you to pay it back?

Would you? What if it was one of those evil corporate banks that make for an easy target? Did the answer just get a little easier?

Not for 60% of Americans who say it is never OK to simply stop making payments on your home, according to a survey by Eagan, Minn.-based findlaw.com, a free legal information website.

Another 34% say it’s OK to walk away from a mortgage, but only if you can’t make the monthly payments. Only 3% believe you should be able to walk away from a mortgage anytime you want, according to the survey, which interviewed 1,000 American adults and had a margin of error of plus or minus three percentage points.

It’s an interesting survey given that U.S. law in a number of states allows consumers to simply hand over the keys to their homes without the lender going after their other financial assets -something that is all but impossible in Canada.

That is not to say that walking away from a mortgage isn’t affecting the credit of Americans who do so. They might not be able to buy another house for years unless they do so with cash.

Despite what the survey says, Americans have been walking away from mortgages in droves because it makes financial sense.

Think about it. You have a home with a $500,000 mortgage on it. The present value of it is $250,000. Why would you not walk away, if you could?

“We just asked people what do you think of the idea, not would you do it yourself or have you thought about doing it yourself,” said Leonard Lee, the researcher behind the survey. “There is a practical argument, but there’s a whole philosophical argument.”

If you were shareholder in a company that owned a $250-million building but kept making payments on a $500-million mortgage even though the company had the ability to walk away from the debt, how would you feel? Would the executives be breaching a fiduciary responsibility?

The U.S. real estate industry even has a term for all this: strategic default. “You are asking at some point, doesn’t it make more sense to walk away from the mortgage where you are unlikely to recoup your original investment,” Mr. Lee says.

Ted Rechtshaffen, certified financial planner and president of TriDelta Financial, says once you put aside the moral issues, it would come down to a simple choice.

“It will impact your credit rating, but from a financial perspective, why wouldn’t you do it? You are getting a $250,000 head start. Another investment is probably going to be better than your current house,” Mr. Rechtshaffen says.

But Benjamin Tal, deputy chief economist with CIBC World Markets, says while it might not make economic sense, there is evidence Americans are not actually walking away from property as much as they probably would if they were listening to a financial advisor.

“Whatever the default rate is now in the U.S., people say it’s 8% and that’s extremely high. I say that’s surprisingly low,” Mr. Tal says. “You have up to six to seven million households that could default any day, namely because they are in a negative equity position.”

What’s in it for them to keep paying? There is something to say for wanting to stay in your home where you have been living and raising a family. There is also a stigma that comes with somebody slapping a foreclosure sign on your property -suddenly your neighbours know a little more about your financial situation.

“At the end of the day though, that’s the rational thing to do. You are talking about houses that are under water more than 20%. Based on an economics textbook, that would be the rational thing to do,” Mr. Tal says.

In Canada, it’s pretty tough to do. For starters, if you have an insured mortgage backed by the government, the bank will get paid off for its loan. But the insurance company, whether it’s Canada Mortgage and Housing Corp. or a private insurer, will go after you for any deficiency created by proceeds from the property being less than the mortgage.

It’s the case in most of the country for uninsured mortgages, too, says John Turner, director of mortgages for Bank of Montreal. Rules are slightly different in Alberta and are designed to protect consumers, but Mr. Turner says banks can elect to go after other assets in some circumstances.

There’s also the scenario where you might have bought a condominium as an investment before it was built and put down, say, a 20% payment. If you think you can walk away if prices dropped by 50% once the building is up, forget it. You’ll be sued.

“As lawyers, we can’t advise someone to break a contract. The law is not you don’t have to obey it, the law is the consequences of not obeying [the contract],” says Calgary lawyer Jeff Kahane. “You haven’t broken the law, you’ve broken your promise. Is it any different than saying why would I want to pay for a chocolate bar at 7-11 when I can put it into my pocket and steal it if I can get away with it.” http://www.financialpost.com/news/Escaping+from+mortgage+prison/4587056/story.html

Canada’s economy unexpectedly shed 1,500 jobs last month, the first fall-back since September that analysts interpreted as a sign growth is moderating from the rapid pace of recent months.

The disappointing report from Statistics Canada was not all bad — full-time jobs shot up by 90,600, hours worked rose a significant 0.5 per cent, and wages increased. Those are all signs the recovery is gaining strength.

As well, the official unemployment rate edged down one-tenth of a point to 7.7 per cent, although that was only because more Canadians stopped looking for work.

On the other side, 92,100 part-time jobs vanished in March, and if self-employment is discounted, the number of employees in Canada fell by 18,900.

Most analysts saw it as a negative signal — although a slight one — given that the economy had been pumping out new jobs at the rate of 38,000 a month since December.

As well, the United States has seen a revival in the labour market this year that many expected to be carried over into Canada, its main trading partner.

“The weaker employment performance is consistent with the view that real gross domestic product in March will be softer than in the prior two months,” said TD chief economist Craig Alexander.

But he added that moderation in growth was expected after a strong fourth quarter wrapping up 2010, and an even stronger start to 2011.

The OECD economic think-tank forecasts the first three months of 2011 will produce a 5.2 per cent jump in economic activity in Canada — the strongest in the G7 — which analysts say cannot be sustained.

The implications for federal political parties campaigning for the May 2 election are likely uncertain. There is enough ambiguity in the numbers that both the government and opposition parties can make a case for their side, said Douglas Porter of BMO Capital Markets.

“Where you stand on this report depends on where you sit,” he said. “It’s definitely a mixed bag.”

While March ended three positive months of job creation, the economy has produced more than 300,000 new jobs in the last year, 251,000 of which were full-time.

Economists were of one mind that the jobs report would also have no impact on next week’s interest rate decision from the Bank of Canada.

Most see the bank keeping the policy rate at one per cent until at least the end of May, and more likely through to July. However, that has not stopped some banks from beginning to hike mortgage rates in advance of a central bank move.

In another economic indicator released Friday, the Canada Mortgage and Housing Corp. said housing starts rose to a better-than-expected 188,800 units annualized in March, with dwellings of multiples such as condos leading the way.

Scotiabank economists said the housing figure was positive but won’t add much to the country’s economic growth, given that multiples are not valued as highly as single dwelling construction.

In March, Statistics Canada said most of the employment gains came in the accommodation and food services sector, up by 36,000 jobs, and construction, up by 24,000.

Meanwhile, 17,000 jobs vanished in the health care and social assistance sectors and 13,000 in public administration. Manufacturing also saw a reversal of fortune, with a decline of more than 9,000 jobs.

The agency said men fared better than older women and youth during the month. Employment among males 25 and over increased by 32,000, while work among women over 55 fell by 17,000, the same number of jobs decline that occurred among youth aged 15 to 24 years old.

Regionally, the big change was in Quebec, where 14,700 jobs were lost during the month. Prince Edward Island saw a significant pick-up relative to its population of 1,400. In Ontario, 63,000 new full-time jobs were mostly offset by the loss of 58,000 part-time employment http://ca.finance.yahoo.com/news/No-new-jobs-created-March-capress-3768214987.html?x=0

One-third (33 per cent) of B.C. residents say that rising food and gas prices have had a significant impact on their budget, according to the latest quarterly RBC Canadian Consumer Outlook Index (RBC CCO). In addition, more than half (53 per cent) of British Columbians say they have delayed a major purchase because of the current economic climate.

Confidence in the economy, however, is rising on Canada’s west coast. B.C.’s overall economic outlook index has moved up nine points to reach 98, its highest level this year. Coupled with this rosy outlook, nearly half (49 per cent) of B.C. residents believe they are managing their debt well, the highest ranking in the country and well above the national average of 38 per cent.

“B.C. residents are confident in the job market and believe the economy will continue to improve,” said Graham MacLachlan, regional president, British Columbia, RBC. “However, rising day-to-day costs of gas and food are starting to have an impact, so it’s good to see British Columbians making debt management a top priority. We continue to stress the importance of meeting with a financial advisor, who can help you refine your budget and financial plan, to ensure there is always room to adjust for everyday financial pressures.”

According to the most recent Economic Outlook by RBC Economics, the B.C. economy will grow at a rate of 2.9 per cent this year. “B.C. will continue to benefit from improved market conditions for most commodities produced in the province, as well as from growing demand from China,” said Craig Wright, senior vice-president and chief economist, RBC. “Expanding trade ties with fast-growing China and the further strengthening in the U.S. economy will help the B.C. economy set a slightly faster pace of growth of 3.2 per cent in 2012.”

The RBC CCO is Canada’s most comprehensive consumer assessment of the economy, personal financial situation and economic and purchasing expectations. Other provincial highlights from the March 2011 RBC CCO include:

• Economic Outlook: More than six-in-ten (63 per cent) of B.C.’s residents rate the current Canadian economy as good, two points higher than the national average; nearly half (46 per cent) believe the economy will continue to improve over the next year, compared to 42 per cent nationally. Job anxiety has dipped to 17 per cent, just one point higher than Saskatchewan and Manitoba who have the lowest job anxiety in the country at 16 per cent.
• Interest rates: The vast majority (80 per cent) of B.C. residents believe that interest rates will rise this year, compared to the national average of 74 per cent. To combat this expected interest rate increase, 31 per cent of British Columbians plan to find ways to reduce their interest costs or monthly payments, 28 per cent plan to increase their savings and/or investments and 43 per cent intend to spend less in other areas.
• Personal Financial Situation Outlook: While more British Columbians feel that, over the last quarter, their personal situation has worsened (32 per cent) rather than improved (23 per cent), more than a third (36 per cent) expect it to improve over the next year.

The Bank of Canada boosted its growth forecast Tuesday but threw a curve ball at Bay Street expectations for a July interest-rate hike by warning the “persistent strength” in the loonie could cause even greater headwinds for the economy.

While some analysts still expect the central bank to start raising rates in July after leaving them unchanged on Tuesday at 1%, others said the statement indicated the bank is in no hurry and could wait until the fall at the earliest.

“It will be difficult to pin down when the next hike will be when you have a central bank that takes the currency into account when making its policy decision,” said Avery Shenfeld, Chief Economist at CIBC World Markets. “And we have a currency that’s volatile right now.”

Shenfeld said the central bank would prefer a “softer currency” before it opts to raise rates again. He added that could unfold in July if commodity prices take a breather.

Click here for the full Financial Post article.

As rising home prices continue to outpace income growth, many young Canadians have decided to delay home ownership for another year, according to a poll released Thursday by Royal Bank of Canada.

RBC’s annual home ownership poll found that 55 per cent of respondents aged 18 to 34 said it made sense to delay a home purchase until next year. That’s 10 percentage points more than the national average for all age groups.

Meanwhile, about half of the young people in the survey who had already delved into home ownership said their mortgage was eating up too much income — suggesting their peers may have good reason to wait.

A sharp rebound in housing market activity as Canada emerged from a recession in late 2009 and early 2010 has sent home prices soaring.

The national average home price rose 8.8 per cent year over year to a record $365,192 in February, although it was skewed upward by sales in the red hot Vancouver market where the average home price was $790,380.

Meanwhile, Canada’s job market has taken longer to recover and income levels haven’t grown at the same rate. A Bank of Montreal report released last month found average resale home prices compared with personal incomes are 14 per cent above the long-term trend.

That makes it more difficult to afford a home — as mortgage payments eat into a larger portion of Canadians’ paycheques — especially those of young people who are just settling into careers and tend to have less money saved.

In addition, young people already struggling with student loan payments may be influenced by a steady stream of warnings over the past year about Canadian debt-to-income ratios reaching record highs, suggested Bernice Dunsby, RBC’s director of client acquisition for home equity.

“Canadians are heeding some of the advice around larger debt levels and stretching themselves too thin so they’re actually taking the time to pause and reflect and plan accordingly, especially when it comes to things like their down payment,” Dunsby said.

Some young people watching home prices soar beyond pre-recession levels may be waiting for a widely predicted drop anticipated over the next year or so, said David Madani, Canada economist at Capital Economics.

“We’ve kind of reached a threshold in the sense that affordability is pretty tough,” he said.

“If you’re talking about a potential young home buyer who is living in Toronto or Vancouver or some other big market, it’s really pricey to get into right now, so that’s discouraging for some young home buyers.”

First-time buyers account for a huge portion of all Canadian housing sales, making the demographic influential in determining the health of the country’s housing market.

This year’s survey, conducted by Ipsos Reid in mid-January, came at a cooling off period in the Canadian housing market following a spate of frenzied buying in the early months of last year.

There will be a drop in demand this year after a number of factors last year combined to drive buyers to jump into the market earlier than planned, Dunsby said.

Many first-time buyers rushed into the market in the first half of 2010 while the Bank of Canada’s key interest rate — which influences commercial lending rates — was set at emergency lows of 0.25 per cent because of the recession.

Those changes affect a minority of mortgage holders who opt for variable rate mortgages linked to the commercial banks’ prime rates.

“(However) they may look at interest rates as an indicator of when to jump into the market,” said Dunsby.

Some buyers also wanted to enter the market before the new harmonized sales tax was implemented last July in Ontario and British Columbia, two of the country’s largest real-estate markets.

Although the HST only applied to some services associated with a home purchase, such as lawyers’ fees, some buyers thought it could push closing costs up a lot more.

First-time homebuyers are also most affected by government moves to change mortgage rules that made it more difficult to qualify for a mortgage. Stricter lending rules brought in the spring of 2010 require all homebuyers to qualify for a standard five-year, fixed-rate mortgage.

More recently, new changes enacted last month shortened the maximum amortization period for a mortgage to 30 years from 35, increasing the size of monthly mortgage payments.

Demand for homes began to wane last spring in the face of rising home prices and short-term mortgage rates, along with stricter mortgage rules and the exhaustion of pent-up demand from the recession.

That has put buyers and sellers on a more even footing when they negotiate.

“In a more balanced housing market, it makes sense that younger and first-time homebuyers are waiting to assess all of their options and do their research before buying a home,” Dunsby said.

“It’s also important to get expert advice on what you can afford and leave yourself with a little extra wiggle room in your budget so you don’t become house poor, as home maintenance and lifestyle costs can add up.”

While 43 per cent of younger Canadians told Ipsos Reid they were paying off their mortgage faster than expected, two-thirds, or 66 per cent, said their mortgages were still larger than they would like.

Rising real estate prices, along with having a large enough down payment, were the biggest concerns among young people surveyed.

Still, 43 per cent of the young adults who responded to the survey said they were looking to buy in the next two years, suggesting the housing market will continue to be healthy going forward.

That’s higher than the national average of 29 per cent for all age groups.

In comparison, only 29 per cent of Canadians aged 35 to 54 said they want to buy within two years and only 17 per cent of respondents over 55 were looking.

The survey also revealed that young people have different ideas about how to seek advice on home ownership than those belonging to older generations.

Most young people said they were more inclined to use websites, family or friends for advice while more than 70 per cent of Canadians over 45 said they would rely on a real estate agent.

The survey’s findings are based on responses from an online panel of 2,103 Canadians, conducted Jan. 12 to 17. A survey of this size has a margin of error of plus or minus two percentage points 19 times out of 20 http://ca.finance.yahoo.com/news/More-half-young-adults-capress-3474012092.html?x=0

A leading international think-tank says Canada will lead its peers in the G7 in economic growth during the first half of this year. The Organization for Economic Co-operation and Development says the outlook for economic growth has brightened for all G7 countries, with the exception of Japan .

But the improvement has been most marked in Canada and to a lesser extent the United States.

“The outlook for growth today looks significantly better than it looked a few months back,” OECD chief economist Pier Carlo Padoan said in a statement.

“Growth perspectives are higher all across the OECD area, and the recovery is becoming self-sustained, which means there will be less need for fiscal or monetary policy support.”

Canada is now expected to grow by 5.2 per cent in the first quarter of 2011, and 3.8 per cent in the current second quarter.

Much of that growth has come from the resources sector in Western Canada and continued strength in the housing market in most parts of the country.

Germany is the next strongest economy, with growth rates of 3.7 and 2.3 per cent in the two quarters.

Overall, the Paris-based organization says the G7 economies excluding Japan are set to grow at an annual rate of about three per cent in the first half of 2011, well above the organization’s previous forecast.

The growth estimates given by the OECD are the middle of a range, meaning the rates could be slightly lower or higher.

The new forecasts exclude Japan because of the uncertainty over the full cost of damage from last month’s earthquake, tsunami and nuclear disaster.

The Canadian economy began the year with an impressive 0.5 per cent expansion in January that has set the stage for the strongest quarter in a year, according to Statistics Canada.

The performance was in line with market projections, but still was a mild surprise because many economists had worried of a possible payback after December’s equally robust 0.5 per cent gain in gross domestic product.

The strong back-to-back months put the economy on pace to grow by as much as 4.5 per cent in the first three months of the year, analysts have said. That’s two whole points more than the Bank of Canada’s now-dated estimate. At that growth rate, the pace of job creation should be high enough to continue pushing down the national unemployment rate, currently 7.8 per cent.

In the last year, the Canadian economy has created 322,000 jobs and has rebounded nicely from the 2008-2009 recession that battered the country’s manufacturing sector.

In some sectors of the economy, price pressures have been building, raising the prospect of higher interest rates down the road to fight inflationary pressures.

The next scheduled announcement on interest rates from the Bank of Canada is April 12, although the central bank isn’t expected to change its policy rate at that time from the current one per cent. Another announcement is scheduled for May 31, after the federal election.

Most economists believe Bank of Canada governor Mark Carney will leave a hike on the sidelines until July http://ca.finance.yahoo.com/news/Canada-middle-growth-spurt-capress-340380811.html?x=0

Concerns over rising oil and food prices and persistent strength in the loonie are taking away some of the swagger in Canada’s business community, the Bank of Canada says.

The central bank said Monday its new spring business outlook survey shows firms remain bullish about the future, but less so than three months ago.

Firms have lowered their sights across a range of indicators including more moderate expectations for the pace of sales growth, hiring and investment over the next 12 months.

“Businesses remain positive about the economic outlook, although some forward-looking indicators have eased from the levels recorded in recent surveys,” the bank said.

“Some firms … cited the negative implications of high prices for energy and food on household spending as a factor dampening sales expectations. A number of firms (also) voiced concerns about the impact of the high Canadian dollar and strong foreign competition.”

Overall, the bank said the survey results show the economic recovery in Canada is advancing and more firms — particularly in the Prairies — are operating near capacity.

The optimism tended to be highest among commodity-related industries.

The Bank of Canada uses the findings in its deliberations over interest rate policy, but nothing in the current report suggests governor Mark Carney is primed to hike rates on April 12, the next opportunity, analysts said.

Most economists continue to believe Carney will leave a hike on the sidelines until July.

Bank of Montreal economist Michael Gregory noted that the survey was conducted between Feb. 14 and March 10, after a strong economic advance in January, but before the earthquake and tsunami hit Japan and before Libya exploded into a full-fledged civil war.

“Expectations might have slipped a bit since then,” he said. “However, this does not belie the fact that Canadian firms remain upbeat about their prospects, particularly those in the Prairies or in the commodities sector.”

“The survey results are consistent with Bank of Canada policy tightening over time, but not imminently,” he added. Half the firms surveyed said they expected to add staff in the next year, as opposed to only 13 per cent that intend to downsize. That’s a balance of opinion in favour of additional hiring of 37 percentage points, slightly lower than three months ago.

By a balance of opinion of 13 percentage points, more firms than not said they expected their sales volume to increase at a greater rate in the next year.

As well, more firms than not expect to invest more in machinery and equipment than they did a year ago, by a factor of 24 percentage points.

The firms cited concerns that input costs are rising, although they are less confident they will be able to pass on those higher costs to customers, partly because of strong foreign competition.

Firms said inflation is increasing, driven by higher food and energy prices, but a majority still expect prices to remain within the central bank’s control range of between one and three per cent over the next two years.

In a separate survey, Canadian senior loan officers report that credit conditions continue to ease for firms on both price and non-price aspects. http://ca.finance.yahoo.com/news/Canadian-firms-still-bullish-capress-680547394.html?x=0

Several of Canada’s big banks are raising most of their fixed-term mortgage rates ahead of the busy spring real estate market.

TD Canada Trust (TSX:TD) TD said the biggest increases will be for mortgages with terms of five to 10 years, which will all go up by 0.35 percentage points starting Tuesday.

The move was matched by CIBC (TSX:CM).

The Royal Bank (TSX:RY) raised its rates on mortgages for five and 10-year terms by 0.35 percentage points and its seven-year rate by 0.15 percentage points. The posted rate for five-year closed mortgages — one of the most popular types of loans for Canadian home owners — will rise to 5.69 per cent.

Scotiabank (TSX:BNS) raised its posted rate for a five-year closed mortgage by 0.4 percentage points to bring it to 5.69 per cent.

Fixed mortgage rates, which are closely tied to the bond market, tend to climb when traders shift investment activity to riskier equity assets from bonds, which are considered safer.http://ca.finance.yahoo.com/news/Canada-big-banks-raising-capress-671069751.html?x=0 

When Sean Fitzgibbons needed a short-term loan last year to cover his daughter’s first year of university, his wife’s master’s degree and a bathroom renovation, the real estate industry veteran knew exactly what to do.

Mr. Fitzgibbons took out a bank-structured home equity line of credit, or HELOC, a form of financing that’s zoomed in popularity in the last decade.

“We wanted to protect ourselves, to make sure we had good cash flow, and we knew based on experience that an option would be to dip into equity in our home,” says Mr. Fitzgibbons, a former real estate agent who runs the Toronto office of Multivista Construction Documentation Inc., which photographs home renovation and commercial construction sites.

But is a HELOC the right option for this borrower, and for thousands of Canadians who have turned it into one of the trendiest instruments of personal finance?

The volume of HELOCs has ballooned by up to 170% in 10 years, nearly double the speed of mortgage debt, according to the Bank of Canada.

Critics say HELOCs, which account for 12% of overall household debt, make it easier for Canadians to borrow too heavily against their homes. They’re non-amortizing, so borrowers can opt to pay interest on whatever is drawn down, not the principal, which arguably imposes less discipline than a mortgage with fixed repayment terms for interest and principal.

And since a HELOC is almost always a variable interest rate product pegged to the Bank of Canada’s prime, if interest rates rise too quickly, a borrower might not be able to keep pace.

The government recently tightened mortgage rules: changes that took effect March 18 allow borrowers to secure up to 85% of their home’s assessed value through a refinancing, down from 90% previously (HELOCs are only available to a maximum of 80% loanto-value). Loans may be made on a 30-year amortization -or repayment -schedule, instead of 35 years. And effective April 18, the Canada Mortgage and Housing Corporation will no longer offer mortgage insurance for non-amortizing loans such as HELOCs.

But the mortgage industry says HELOCs aren’t proven to be the culprit behind rising consumer debt. And if used judiciously, they’re a low-cost financing option for Canadians who might otherwise rack up expensive credit card debt to cover urgent needs.

“The biggest downside is definitely the temptation to use the money because it’s there,” says Marcel Ghazouli, a mortgage broker with Premiere Mortgage Centre of Mississauga, Ont. “The advantage is, it’s money there when you need it.”

HELOCs provide revolving credit: once approved, they can be continually repaid, without penalty, and the credit drawn down again and again.

There’s no obligation to re-qualify for assistance, for example, following a sudden drop in the family’s income, since the loan is secured against the home.

Canadians typically play it safe with such financing, says Jim Murphy, president and chief executive of the Canadian Association of Accredited Mortgage Professionals.

A study by his association last fall revealed one in five Canadians withdrew equity from their home in 2010, averaging $46,000 per borrower; of those, 45% used the money to consolidate and repay higher-interest debt, 43% made home improvements, and 19% paid for education.

According to Mr. Murphy, it’s “too early to say” if the federal rule changes will dampen enthusiasm for HELOCs.

“The basic result is you can borrow less on your home than you could have,” he concludes, “but you can still borrow a lot on the value of your home.”

Repaying fully within two to five years should be the goal, Mr. Ghazouli says.

HELOCs are especially useful for funding renovations to improve a home’s resale value – better still, if the home is to be listed for sale soon afterward, and proceeds will be used to pay off the loan, he says.

Taking advantage of the current real estate market in Toronto, Mr. Fitzgibbons was able to maximize the amount of his credit line at historically low interest rates.

Similar to selecting a contractor, he put several mortgage companies through the paces, getting references and ultimately choosing a reputable broker to guide him through the array of HELOC products on offer.

“People will go into a bank and say, ‘I need a line of credit or a credit card,’ the bank will say OK,” Mr. Fitzgibbons says.

“But if you’ve done your homework and know what to ask for, and you have a broker who’s on it every day, you’ll get better advice.” http://www.nationalpost.com/news/Consumers+turning+home+equityloans/4525578/story.html