Mortgage Status and Financial Stress: Do Home Equity Loans, Negative Home Equity, and Mortgage Default Matter?

Abstract

A home is often the largest asset held by U.S. households. If home equity accumulation is slowed through acquiring a home equity loan, threatened through mortgage default, or undermined through the occurrence of negative home equity, homeowners may experience increased financial stress. This study used the 2018 National Financial Capability Study to assess the relationship between three mortgage statuses (having a home equity loan, negative home equity, or mortgage default) and financial stress among nonretiree mortgage holders (N= 5,058). Financial stress was measured by an index of financial difficulty perceptions. Findings revealed that negative home equity is related to greater levels of financial stress than mortgage default or having a home equity loan. Additionally, experiencing a large drop in income intensified the positive relationship between negative home equity and the financial stress index. These findings suggest that conditions seemingly outside the control of homeowners may influence their financial stress perceptions.