With adjustable-rate mortgages resetting to a lower rate, homeowners with these loans are seeing more money in their pocket and are increasing their overall spending, according to a newly released report by JPMorgan Chase Institute. Borrowers with ARMs have increased their spending by 15 percent relative to their baseline, which equates to about $488 per month, according to the report.
Further, these homeowners spent 9 percent more ahead of the expected decrease in their mortgage payments and used the extra money on home improvements and health care costs, according to the report. Following their rate reset, homeowners also showed an increase in their retail expenditures. "There was definitely a larger increase in discretionary spending rather than nondiscretionary spending," says Kanav Bhagat, one of the report's authors and director of research for the JPMorgan Chase Institute.
Previous research shows a similar pattern of consumer behavior. Homeowners are more likely to spend their savings because, well, it's just more fun to do so, says George Hofheimer, chief knowledge officer at the Filene Research Institute, a credit union and consumer think tank. "It's very similar to the windfall during tax season," he told MarketWatch. "People use that windfall for things that are not good for their financial health."
Source: “This Is What Homeowners Did With Their Savings on Variable Mortgage Rates,” MarketWatch (April 22, 2017)
