Millions of American household budgets are so stretched that homeowners would tap into their home equity just to meet everyday expenses.
Among those who earn less than $30K a year, 31% say its OK to do that, more than triple those who earn $75K+ according to a new survey from Bankrate.com.
“The idea that nearly 1 in 6 American homeowners views ‘keeping up with regular household bills’ as an appropriate reason to borrow from home equity speaks to how far some households are stretched on a monthly basis,” said Bankrate.com chief financial analyst Greg McBride, CFA. “This further exemplifies the importance of having an emergency fund, so when the unexpected happens – and it will happen – there is a savings cushion to fall back on.”
Other reasons for tapping equity
Of course, most homeowners have other uses for their home equity with 57% believing the best reason for tapping this resource is to spend on the home itself through improvements or repairs. Almost three quarters say this is an ‘adequate reason’ for tapping equity.
While not the best reason, other ‘adequate’ circumstances for using home equity include debt consolidation (44%), tuition or other education expenses (31%), keeping up with regular household bills (15%), making other investments (12%), purchasing big ticket items like furniture or appliances (9%), taking a vacation (3%), and buying a boat (1%). Respondents could choose more than one reason.
“With the sorry state of emergency savings and increasing levels of consumer debt in a rising interest rate environment, it is a matter of when, not if, more homeowners turn to home equity to fund home improvements and repairs or consolidate debt,” added McBride. “Many Americans may have more tappable equity than they realize, and as home values increase and mortgage principal is paid down, that equity is on the rise.”
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