Is paying the electricity bill worth taking out a second mortgage? Around one in six Americans thinks so.
About 24 million U.S. homeowners think it’s acceptable to tap into home equity to pay everyday household bills, according to a new report by Bankrate.com. The survey found that young, less educated, and lower earning homeowners were more apt to say so.
The survey found that nearly one in three homeowners who earn less than $30,000 annually think paying the bills is a good reason to take out a loan secured by their homes. That’s more than three times the rate of homeowners making more than $75,000 per year.
Around 21 percent of people with no more than a high school diploma think so, which is double that of homeowners with more education. A similar percentage of millennials would tap home equity to pay the bills, while just 12 percent of older homeowners would.
Greg McBride, chief financial analyst for Bankrate, said the results reflect that homeowners have little cash set aside for emergencies or surprise bills, and “speaks to how far some households are stretched on a monthly basis.”
Still, most homeowners surveyed said that traditional uses were the best reasons to tap into home equity. Around 57 percent said the best reason to borrow against their homes was for home improvements or repairs, compared to 19 percent for debt consolidation and 9 percent for education expenses.
The Bankrate report also showed that few homeowners are choosing to borrow against their homes. Only 1.1 percent of the $6 trillion in available home equity was tapped in the second quarter, down 3 percent year over year. It was also the lowest share since the first quarter of 2014.
Interest rates and consumer debt are climbing, so McBride expects more homeowners to borrow against their properties.