Magazine article American Banker

Cash-Strapped Baby Boomers Seen Staging Home Equity Raid

Magazine article American Banker

Cash-Strapped Baby Boomers Seen Staging Home Equity Raid

Article excerpt

It's those aging baby boomers again. As they come into a new part of their life cycle these grasshoppers will find that they need cash for lots of new reasons-and they haven't socked much away.

Their cash needs will include college tuition for their children, health care for themselves and their parents, home improvements, and retirement.

In a new report from Merrill Lynch & Co., three researchers conclude that though the boomers may be cash-poor, they are house-rich, and will be able to tap the accumulated equity in their homes to meet those needs.

Sounds good for home equity lenders. And it gets better. "With the stock market posting annual gains of well over 10% over the past few years, the opportunity cost of having funds tied up in housing, which has been appreciating at 2.5% to 3%, has been very high," the report says. "It may only be a matter of time before many feel compelled to allocate out of real assets into financial assets, or at least have the flexibility to do so" when market conditions make it appropriate.

And that's another entree for home equity lenders, the researchers say, because these loans offer the flexibility that enables homeowners to make such a shift in assets.

An additional influence is the tax-deductibility of interest paid on home equity loans, which the team says makes the loans the cheapest source of credit outside conventional mortgages.

Unless interest rates rise dramatically, this means rapid growth in home equity loans, the report says. …

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