Research and Statistics

Poll: Mortgage is 1st payment priority, credit cards last


The majority of homeowners will make house payments even if it affects other bills. Learn why at

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Home is where the heart is, and the vast majority of homeowners are wholeheartedly committed to making their house payments, even when it means putting other bills on hold.

Mortgage is 1st payment priority, credit cards lastThat’s the key finding from a national survey by of America’s bill-paying habits. It puts into perspective several national media reports in September 2007, which suggested, based on anecdotal evidence, that Americans were increasingly likely to keep their credit card payments current and let their mortgages slide into default.

The results of the poll, conducted for by GfK Custom Research North America, show that “plastic priority” is an extreme rarity. Overwhelmingly, consumers say that shelter tops their must-pay lists.

Survey methodology, major findings
A total of 1,005 interviews were conducted Sept. 28-30 of men and women 18 and older. The margin of error for this study is plus or minus 3 percent, with a higher margin for subgroups. In addition, supplementary interviews were conducted Sept. 21-23 to gain a total of 281 interviews among adults who carry balances on a number of loans. All were asked to rank which they would pay first, and which they would pay last — utility bills, an auto loan, a mortgage payment or credit card payment — were they to fall into financial trouble.

The major findings include:
• More than half of the nation (54 percent) say they would pay their mortgage payment first. Making sure the home remains livable by paying utility bills ran second at 34 percent.
• Just 6 percent said they would pay the credit card bill first if they were falling behind financially. Nearly two-thirds (64 percent) say they’d put off paying credit cards even if it meant losing them.
• A measly 3 percent would think to put off paying a mortgage if it meant losing it.

“They have to put their mortgages first,” says Howard Dvorkin, founder of Consolidated Credit Counseling Services Inc. in Fort Lauderdale, Fla., who has been advising debt-ridden consumers for nearly 15 years. “No matter what [your] financial condition, there are certain basic human needs that need to be met. You’ve got to have a roof over your head.”

Credit cards fanatics
A few folks, however, cling to their credit cards above all else, even if it means letting the mortgage slide. At a September investment conference, Capital One representatives released third quarter company financial data indicating that some consumers were delinquent on mortgages but were staying current on credit card payments. Last month’s American Bankers Association’s Consumer Credit Delinquency Bulletin reported the same development in the second quarter of the year.

It’s a trendlet spawned by the surge in people who realize they can’t afford their homes, according to financial experts and credit counselors on the front lines of debt.

“Traditionally what we’ve always seen is when a consumer is struggling with their finances, they pay their [housing costs] first, car second and credit cards last,” says Michael McAuliffe, president of the Rockford, Ill., office of Family Credit Counseling Service (FCCS). “But in the spring, people started coming to us who were not paying their mortgages, but were current on their credit cards.”

That was a first for McAuliffe, who has been in credit counseling for 12 years.

Against conventional wisdom
James Chessen, chief economist for the bankers’ association, offers a possible explanation. It may seem to go against conventional wisdom for credit card repayment rates to lead mortgage repayments, Chessen said in a statement accompanying the credit bulletin, but consumers’ priorities can shift, especially if they’re facing the one-two punch of higher adjustable-rate mortgage interest payments and declining home equity.

Apparently, said McAuliffe, many FCCS clients had indeed conceded that, regardless of their efforts, they were going to lose their homes. “They’re in unique circumstances in unique times,” he says. “They have negative equity or negative amortization on the loan, are facing really high adjustable interest rates, so they’re trying to keep whatever they have together.”

“If you’ve got zero equity in your home you’re not going to worry about hanging onto it,” says McAuliffe. “And if you’re in one of those loans, it may seem like a good idea to just let it go.”

A plastic safety net
Individuals in such straits may see their credit cards as an emergency fund.

“People tend to lean heavily on credit cards in times of need,” says Thomas Fox, community outreach coordinator at Cambridge Credit Counseling Corp. in Agawam, Mass. “But it just makes the situation that much worse. If you’re using credit cards to pay bills, then where do you get the money to pay those credit card bills?”

Dr. Tahira K. Hira, professor of family and consumer economics at Iowa State University in Ames, sees a few other issues affecting bill paying choices.

“Would they like to lose the home? No. But there’s some denial,” Hira says. The foreclosure process “will take some time.” Before that ultimate eventuality, the homeowner might think a favorable solution can be found.

There’s also the different requirements to keep the two types of debt current. With a credit card, you need only pay a small amount each month, says Hira. A monthly mortgage payment, however, must be made in full or the loan will become delinquent.

Money emotions
Neither can the emotional component of money be overlooked. McAuliffe says some financially strapped homeowners come to FCCS angry at their mortgage companies. “They feel deceived, feel like the lender put them in a bad position in the first place, so they don’t feel bad about not paying the mortgage,” says McAuliffe.

Such sentiment doesn’t surprise Hira. In addition to the emotional factor, she says, a sociological aspect also comes into play.

“You’re very much affected by what others are doing with their money and are attempting to react that same way,” says Hira. These homeowners are now realizing they’re in a home that they didn’t need to be in, she says, and feel pushed into it.

“We are all adults and should enter into situations knowingly, but [lenders] are making it more appealing and enchanting, rather than being more realistic and boring,” says Hira. “You have to be very strong, aware of yourself and confident to not look at getting something that makes you ‘look’ rich.”

Debt’s demographic differences
While the poll found mortgages the top bill payment priority in all categories, there were regional and age variations.

Geographically, Westerners are substantially more committed to paying their mortgages than other U.S. homeowners. Sixty-four percent of Western residents say they would pay their mortgages before any other bill in times of financial stress. The house payment is first for 51 percent of Northeastern residents, 52 percent of Southerners and 52 percent of Midwestern residents.

Men also show a preference for plastic, with 9 percent of them listing it as the bill they would pay first even if they were falling behind financially. Only 4 percent of women would do so. Similarly, more women than men — 68 percent versus 60 percent — are willing to forgo credit card payments even it means losing the account.

That doesn’t surprise Dvorkin. “Women are typically more responsible and typically have a better handle on the budget,” says he says. “Men may bring in larger paychecks, but their wives usually are in control of the household budget; they’re more attuned to what’s going on with regard to family finances. Men tend to think that credit cards are more of a necessity and they may be financing a lifestyle they can’t afford.”

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