Home Equity Loans Cutting Installment Debt, Data Show
The year's first data from the Federal Reserve on consumer installment credit confirm what many have suspected: Americans are using the equity in their homes to consolidate debts at lower interest rates and finance purchases with largely tax-deductible credit.</br></br>Although consumer credit rose slightly during January, revolving credit-overdrafts, bank and retail charge cards-fell by $366 million, a 3.3 percent drop on an annual basis. Other types of personal bank loans fell by 1.7 percent in the same month. Automobile loans increased enough to account for the overall rise, but the pace was only half that of December's $2 billion.</br></br>The Fed noted that "credit, other than for automobiles, declined in January, perhaps reflecting continued substitution of home equity loans for more traditional forms of consumer credit."</br></br>Although home equity loans are not broken out, Fed figures show that total bank loans secured by real estate rose by $8.1 billion in January, compared with $4.7 billion a year earlier.</br></br>The changes in loan balances reported by 400 banks nationwide in the monthly survey were sufficient to cause the Fed to investigate. Subsequent telephone calls by the staff to the banks revealed that many new home equity loans were being used to pay off charge card balances.