Mark Dolliver’s Takes: No Equity Like Home Equity

Maybe the word “homeowners” is a misnomer, as Americans have been busily extracting equity from their homes. According to an Experian/ Gallup Personal Credit Index poll, 25 percent of homeowners have both a first mortgage and a home-equity loan or line of credit. As you can see from the chart below, home-equity loans are more common in higher-income households than in their lower-income counterparts. That’s partly because old folks (who tend to have lower incomes than current workers) are the people most likely to have no mortgage whatsoever. Among homeowners age 65-plus, 24 percent have a first mortgage, as do 61 percent of those 50-64, 84 percent of the 30-49s and 78 percent of the 18-29s. When people get a home-equity loan, what do they do with it? The most popular purpose is to “finance home improvements or repairs” (cited by 36 percent of those who have such a loan)—a reasonable investment when house prices are rising, less so when they’re falling. Other people deploy the money chiefly to “consolidate debt” (12 percent) or to “pay off credit cards” (5 percent)—which sounds respectable until you realize they’re draining capital to pay for expenses their regular income couldn’t cover. Four percent use the money to pay for medical expenses, and 7 percent use it to cope with “another emergency.” Three percent use the cash for educational costs. Twenty-six percent devote the loan to “something else,” which sounds ominous.