November 01, 1998 | By Kenneth R. Harney
WHO SAYS American families are hocking their homes to the hilt, racking up new debt to pay off credit cards and auto loans?
A major new study of the housing debt loads carried by Americans suggests that many homeowners don't fit that mold:
Nearly 40 percent of all homeowning households now have no mortgage debt -- no first deed of trust, no equity line of credit, no second mortgage.
Nearly one of five homeowners between ages 18 and 34 has no mortgage debt. Half of all homeowners between ages 55 and 64 have zero debt against their houses. And, perhaps less surprisingly, more than 80 percent of seniors 65 years and older are mortgage-free.
Homeowners who live in Western states are the least likely to own their homes without any form of mortgage (31 percent). Residents of the Southern states are the most likely (44 percent) to be free of mortgages.
The higher your income, and the higher your education, the less likely you are to own your house with no mortgage.
These are just a few of the findings of a national statistical profile of home-equity indebtedness conducted for the Federal Reserve Board and the American Financial Services Association by the University of Michigan's Survey Research Center. The third of its type since 1988, the study found that, contrary to widespread belief, "the overall incidence of home-related debt has not significantly changed" during the past 10 years.
The percentage of homeowners with first mortgages has hovered at about 60 percent since 1988, and the percentage of owners with second mortgages has remained at just 5 percent. The only increase has been in the percentage of consumers using equity lines of credit, where 8 percent now have a credit line vs. 6 percent 10 years ago.
What are people using their home-equity borrowing for? Here the new study found some large recent changes in behavior: Buying a new car with a home-equity line is the hot move at the moment.
Thirty-nine percent of homeowners who take out equity lines are now using the cash for an auto purchase -- a 9-percentage-point jump
in the past three years. Using your equity line to consolidate and pay off credit card debt is also a hot trend; 38 percent of equity-line borrowers say they're now using their house to bail themselves out of high-interest-rate credit card balances, up 11 percentage points since 1994.
Still another fast-growing trend: paying off medical debt. The percentage of equity-line borrowers using the funds for medical expenses has more than doubled over the past four years -- to 11 percent from 5 percent in 1994.
The predominant uses of credit-line cash continue to be remodeling, expanding and improving the home. More than two-thirds of all consumers who take out an equity credit line say they put some of the money back into their properties.
The new study documents some interesting contrasts between homeowners who take out traditional second mortgages vs. those who borrow using equity credit lines. Second-mortgage borrowers -- including those who add new loans to their first mortgage to produce debt loads close to or higher than the resale value of the house -- are significantly more likely to be paying off credit cards with the proceeds than equity-line borrowers.
Forty percent of second-mortgage borrowers cited the tax-deductibility of their loans as a key attraction. That focus on tax deductions represents a major jump in consumer awareness during this decade, no doubt accentuated by exposure to the large increase in television, radio and direct mail advertising by lenders specializing in this type of loan. Just three years ago, only 28 percent of second-mortgage borrowers mentioned tax-deductibility as an important enticement. In 1988, just 19 percent cited it as a factor. Now it's almost become the name of the game.
Credit card debt
Consolidating credit card debt is the fastest-growing use of funds for second-mortgage borrowers. Nearly half (48 percent) of people taking out second mortgages say they're consolidating credit card debt, compared with 38 percent of equity-line borrowers. Yet 20 percent of second mortgage borrowers use the money to buy a car -- half the proportion of equity-line borrowers who do.
Kenneth R. Harney is a syndicated columnist. Send letters in care of the Washington Post Writers Group, 1150 15th St. N.W. Washington, D.C. 20071.