A majority of Americans believe the size of their mortgage has hurt their ability to save money for the future, according to a new survey published on Wednesday.
Bankrate.com found that 77 percent of homeowners think their mortgage size has limited how much cash they can stash away. In fact, nearly two in five homeowners, or about 39 percent, said the equity in their home is higher than their retirement savings accounts, including their 401K and IRA. Just 28 percent said the balance in their retirement accounts exceeds their home equity.
“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 Greg McBride, Bankrate.com chief financial analyst. “Homebuyers should beware of biting off more than they can comfortably chew and locking themselves into payments that make it difficult to save.”
The trend crosses generations: Home equity exceeds retirement account balances among every age group. Still, that gap narrows over time. Twice as many millennial homeowners said they have more home equity than retirement savings (46 percent), compared to just 37 percent of baby boomers who were in a similar situation.
Individuals with a higher income and higher education level are more likely to have more money in their retirement savings accounts than in home equity, the study found.
For instance, higher-income households, or those earning more than $80,000, are more likely to have a higher retirement balance than home equity, at 44 percent. Forty-nine percent of individuals with postgraduate degrees have a higher retirement savings account than home equity.
“Homeowners can look at refinancing at a lower rate to shave their monthly payments and open an avenue to increased savings,” McBride said. “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.”
More than 11 million homeowners could save an average of $268 per month on their mortgages if they were to refinance at today’s rates, according to real estate data firm Black Knight. Refinancing allows borrowers to pay off and replace an existing mortgage with a new loan and refinance rates; it can be used to lower your mortgage rate, reduce monthly payments or switch your loan type.
Mortgage rates in the U.S. have fallen to record lows, hitting 3.29 percent last week, the lowest ever recorded by mortgage Freddie Mac.