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Last year, Canadians spent $77.7bln renovating their homes, and according to an Altus Group analysis, at least $17bln came from new borrowing.

Of the monies borrowed, Altus estimates that about half came from secured financing, like home equity lines of credit. Larger renovations can take months to complete and refinancing a mortgage to pay for one could burden the borrower with up-front interest.

“HELOCs are an efficient way of borrowing for renovations, particularly with larger renovations,” said Patricia Arsenault, Altus’s vice president of research and consulting services. “They might go on for months and you pay out an installment to your contractor. With a line of credit, because it’s a revolving product, you draw down the dollars when you need them so you’re not incurring any interest until you borrow the money and give it to the contractor. If you’re doing the same renovation work but refinancing a mortgage, that decision point’s going to be depending on whether you have you a line of credit, a mortgage, and also what the relative interest rates are on them. But if you refinance a mortgage to pay for a renovation, you pay interest up front. I think that’s why HELOCs have been popular in terms of using them for renovations.”

Arsenault draws a parallel between the proliferation of home renovation shows, like the ones featured on HGTV, and the surge in renovations. However, there’s another significant, albeit anodyne, reason.

“The other thing is housing stock keeps growing, and if you have more houses out there, there’s more potential to renovate,” she said, before adding that growth is expected to taper.

“We’re expecting some slower growth, but we’re not expecting it to contract. Ontario and Quebec were very strong in 2017. With Ontario home sales being down, it has some negative impact on renovations because we find that home sales go hand-in-hand with renovations; it isn’t an either/or type of thing. If you know you’re going to move, a lot of times people will undertake renovations to try and capture the best dollar they can get. The flip side is when people acquire a new home they want to make renovations to it to better suit their needs.”

Arsenault also notes that, in spite of slower sales cycles, intent to buy a home remains strong among Canadians.

However, in a rising rate environment, taking out HELOCs is riskier than it has been in about two decades.

“If you think about a rising rate environment, you can literally have a doubling of the amount you have to pay every month with the HELOC and there’s nothing you can do about it,” said Michael Garrity, CEO of Financeit. “If rates continue to rise over a five-year period, what you’re paying today monthly could literally double, and that’s just to service the interest, not principal.”