Cash-strapped Americans are willing to leverage their homes to pay the bills | World News - Hindustan Times
close_game
close_game

Cash-strapped Americans are willing to leverage their homes to pay the bills

ByBloomberg
Sep 19, 2018 09:17 PM IST

Almost 1 in 3 homeowners who earn less than $30,000 per year said it’s OK to tap into home equity to cover their everyday bills, more than triple those who make $75,000 or more.

As US household debt rises and wages stagnate, millions of Americans are thinking about tapping into home equity to keep up with day-to-day expenses.

US flags are seen near the Mall in front of the US Capitol in Washington, DC on July 3.(AFP File Photo)
US flags are seen near the Mall in front of the US Capitol in Washington, DC on July 3.(AFP File Photo)

Twenty-four million homeowners believe borrowing against home equity is an acceptable way to cover regular bills, according to a Bankrate.com report released on Wednesday. Cash-strapped millennials, low earners and the less educated were most likely to think home equity offered an appropriate solution to ordinary bills.

Hindustan Times - your fastest source for breaking news! Read now.

“Regular household bills should be funded by a regular household income, not home equity,” said Greg McBride, chief financial analyst at Bankrate.com. “Wage growth has been elusive, but rising household expenses have not. And now home equity is being seen as a lifeline for those who are strapped for money with little wiggle room.” 

The study, conducted by research firm GfK, surveyed a national sample of 1,000 American adults—719 of whom were homeowners—from Sept. 7-9.

Almost 1 in 3 homeowners who earn less than $30,000 per year said it’s OK to tap into home equity to cover their everyday bills, more than triple those who make $75,000 or more. Twenty-one percent of those with no more than a high school diploma agreed, nearly doubling those who have a college degree. And 22 percent of millennials also felt home equity was an appropriate resource for paying bills, compared with only 12 percent of older Americans.

“These people are living paycheck to paycheck with little or no emergency savings—and they’re scraping up money any way that they can,” said John Hope Bryant, chief executive officer and founder of Promise Homes Co., a property asset manager that offers affordable housing and financial support services to families.

Almost 1 in 4 Americans have no such savings, according to a June Bankrate.com study. But even cash-strapped homeowners are more fortunate than many, Bryant said, since US homeownership has fallen to the lowest rate in more than 50 years.

About 3 in 4 homeowners said home improvements or repairs are an appropriate reason to borrow from home equity. Other reasons included debt consolidation and education expenses, the study found.

US household debt has continued to rise through the second quarter, propelled by an increase in mortgage borrowing, according to a Federal Reserve Bank of New York report released in August. Total household debt rose 3.5 percent from a year earlier in the April-to-June period, to a record $13.3 trillion, while mortgage debt also rose 3.5 percent, to a whopping $9 trillion.

The cost of home equity borrowing is on the upswing as well. Interest rates on home equity lines of credit, otherwise known as HELOCs, are at their highest since the 2008 financial crisis, data from Bankrate.com show. This increase is in line with US benchmark interest-rate hikes.

“The high interest rate on home equity debt is going to exasperate the situation,” Bryant warned. “And it could ultimately dampen property sales.”

Unlock a world of Benefits with HT! From insightful newsletters to real-time news alerts and a personalized news feed – it's all here, just a click away! - Login Now!

Get Latest World News along with Latest News from India at Hindustan Times.
SHARE THIS ARTICLE ON
Share this article
SHARE
Story Saved
Live Score
OPEN APP
Saved Articles
Following
My Reads
Sign out
New Delhi 0C
Tuesday, March 19, 2024
Start 14 Days Free Trial Subscribe Now
Follow Us On