Home Mortgage Abuse Leads to Negative Savings

The U.S. may be the leading industrial nation in the world, but it falls way behind other countries when it comes to personal savings. Cash-out home equity loans with attractive interest rates are a big factor behind this phenomenon.

In America, land of plenty, we're accustomed to having the things we want. We're presented with endless introductions to products designed to make us younger, thinner, sexier, and more successful. Meanwhile, banks and credit card companies encourage and support our buying decisions with clever slogans and generous credit limits. Spending freely may be the American way...but is it the right way?

Household savings trends

According to the Organisation for Economic Co-operation and Development (OECD), the U.S. household savings rate has dipped into negative territory. Essentially, this means that Americans spend more money than they make-a dangerous trend because it's typically supported by debt. To compare, Germany, Spain, and Italy all have positive household savings rates-a full 10 percent of income is stashed away for a rainy day.

Home mortgage abuse

While you might assume that credit cards are the biggest culprit, home mortgages contribute to high spending levels, as well. During the last several years, historically low fixed-interest rates, coupled with soaring property values, have encouraged homeowners to refinance or take out home equity loans. The resulting cash windfall didn't usually sit idly in the bank; it's money that was spent.

If you've recently pulled cash out of your home, you're not necessarily headed for financial distress. As long as you invest your money with purpose, spending in excess of your income isn't automatically a bad thing. The investments that make sense are those that pay dividends, cash or non-cash, later down the line. College tuition, home improvements, reliable business or real estate investments, and retirement contributions, are just a few examples of wise ways of using this money.

Investments that don't make sense include gambling, high-risk business ventures, and exotic vacations that you couldn't otherwise afford. In short, spending your equity home loan funds frivolously is a recipe for a bad credit disaster.

It may seem like free money when the equity loan closes, but it isn't. Set your patriotism aside and remember that it's in your best interest to use that equity cash wisely.