Survey Finds Majority of Homeowners Do Pay Principal on Interest-Only Real Estate Loans

SAN FRANCISCO, Oct. 24 /PRNewswire/ -- Contrary to popular opinion, many American homeowners are making a concerted effort to pay down the principal balance of their interest-only real estate-secured loans -- despite rising gas prices and some signs of declines in consumer confidence.

As part of a nationwide survey of more than 1,300 homeowners conducted in August 2005 released today by Wells Fargo, respondents were questioned about their financial behaviors and attitudes regarding interest-only loans, the housing market and retirement planning.

The Wells Fargo Second Annual Survey of American Homeowners found that of the 8 percent of homeowners with interest-only real estate-secured accounts, a 73-percent majority pay both the principal and interest at least some of the time. Of this 73 percent, 23 percent pay the principal in addition to interest all of the time while an additional 8 percent make principal payments as well as interest payments outside of the standard payment schedule. Just one in four (25 percent) pay only interest all of the time. These behaviors were consistent across both age and income.

Respondents were asked about their reasons for choosing an account with an interest-only payment feature and the primary responses were to direct their funds into higher return investments and to lower their monthly payments. Surprisingly, choosing this type of account to be able to buy a more expensive home was not the most popular reason cited.

"Despite the discussion in the media about interest-only real estate- secured loans and questions about consumers' ability to manage their payments, these survey results are similar to the responsible consumer behavior we see in Wells Fargo's own home equity lending portfolio," said Doreen Woo Ho, president, Wells Fargo's Consumer Credit Group, one of the nation's leading home equity lenders. "It's obvious from the survey that homeowners understand the loan options they choose and how they manage what's likely their largest asset -- their home."

Consumer behavior with interest-only accounts points to a broader theme of increased financial conscientiousness especially for those homeowners with home equity lines of credit and loans. Thirty-eight percent of homeowners with a home equity account are more likely to have consolidated bills in the past year compared to just 24 percent of homeowners without a home equity account. With an eye to the future, 74 percent of respondents have started saving for retirement. Those with home equity accounts are ahead of the game with 78 percent of respondents saying they are saving for retirement compared with 70 percent who have never had a home equity loan or line of credit.

According to recent national studies by organizations in the housing industry, including the National Association of Realtors and Harvard University's Joint Center for Housing Studies, single women account for the fastest growing segment of the home buying population in America. However, these survey findings show this group sees a darker cloud over the economy with 61 percent indicating they believe the economy is very weak compared to 42 percent of the general population who share this view. Despite their potential to purchase homes, single women homeowners are much less likely to take advantage of the equity in their homes. In fact, just 35 percent (vs. 49 percent) have ever had a home equity loan/line of credit. Further, when questioned about retirement planning, only two of three single women (66 percent) indicated they have started to save for retirement compared to 74 percent of general homeowners. However, those single women homeowners with a home equity loan/line of credit are much more likely to be saving for retirement (82 percent vs. 61 percent) than their counterparts who have never had home equity loans or lines of credit.

The Wells Fargo Annual Survey of American Homeowners, conducted by International Communications Research (ICR), and commissioned by the Wells Fargo Consumer Credit Group, polled a total of 1,359 homeowners nationwide earlier this year. Additionally, a sample of 302 single female homeowners was surveyed.

About Wells Fargo

Wells Fargo's Consumer Credit Group, a division of Wells Fargo Bank, N.A. and one of the leading providers of home equity and personal credit accounts, is part of Wells Fargo & Company, a diversified financial services company with $435 billion in assets, providing banking, insurance, investments, mortgage and consumer finance to more than 23 million customers from more than 6,000 stores and the internet (wellsfargo.com) across North America and elsewhere internationally. Wells Fargo Bank, N.A. is the only bank in the United States to receive the highest possible credit rating, "Aaa," from Moody's Investors Service.

2005 Wells Fargo Bank, N.A. All rights reserved. Equal Housing Lender

Source: Wells Fargo