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Bankrate.com: Mortgages Negatively Impacting Savings

NationalMortgageProfessional.com
Mar 11, 2020
Photo credit: Getty Images/BrianAJackson

According to a survey conducted by Bankrate.com, 77 percent of U.S. mortgage holders say the size of their mortgage has a negative impact on their ability to save money for the future. This includes 31 percent who say it has a major negative impact and 46 percent who say a minor one. Meanwhile, U.S. homeowners are more likely to have the equity in their home exceed their retirement savings.
 
Mortgage holders whose efforts to save money for the future are most impacted by the size of their payment include 82 percent of Gen Xers (ages 40-55), 81 percent of parents with young children (ages 18 and under) and 78 percent of Millennials (ages 24-39). Additionally, lower-income households (under $49,999) were more inclined to say the size of mortgage has a major negative impact on their ability to save than a minor one (44 percent versus 36 percent).
 
“Big mortgage payments take a bite out of your monthly income, but are also a major obstacle to saving for retirement, emergencies or other financial goals,” said Bankrate.com Chief Financial Analyst Greg McBride, CFA. “Homebuyers should beware of biting off more than they can comfortably chew and locking themselves into payments that make it difficult to save.”
 
Nearly two in five (39 percent) homeowners say the equity in their home is higher than their retirement savings accounts (including 401k or IRA), while 28 percent say the balance in their retirement accounts exceeds their home equity.
 
Surprisingly, 38 percent of those who own their home outright have more equity in their home than funds in their retirement accounts, and 28 percent of outright homeowners say their total retirement balance is higher. Only 12 percent say their home equity is equal to their retirement balance.
 
Between 18-22 percent of every generation of homeowners (aside from Gen Z) do not know whether they have more money in home equity or their retirement accounts. Women, lower earners and those with less education are more likely to be unsure of which balance is higher.
 
Home equity exceeds retirement account balances among every age group, but the gap narrows over time. Twice as many Millennial homeowners have more home equity than retirement savings (46 percent versus 23 percent); the difference is much smaller among baby Boomers (ages 56-74), with 37 percent having more home equity and 33 percent having a larger retirement account balance.
 
The likelihood for retirement account balances to exceed home equity increases with income and education. Higher-income households ($80,000 and over) are most likely to have a higher retirement balance than home equity (44 percent retirement versus 34 percent home equity), as well as those with post-graduate degrees (49 percent versus 32 percent).
 
“Homeowners can look at refinancing at a lower rate to shave their monthly payments and open an avenue to increased savings,” said McBride. “Don’t neglect retirement savings in a hurry to pay down or pay off a low rate mortgage. Money in a retirement account will pay the bills, home equity will not.”

 
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