Can Lack of Emergency Savings Lead to Mortgage Problems?

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By Katie Bryan
America Saves Communications Manager

The FINRA Investor Education Foundation recently released a new study revealing that households without emergency savings are more likely to experience mortgage payment problems when faced with an income shock. Households without emergency savings, or rainy day funds, were three times more likely than households with emergency savings to make a late mortgage payment—and almost twice as likely to be involved in a foreclosure. These differences exist even after controlling for other factors that can impact mortgage payment behavior—like income, education and geographic region.

 

The study also found that minorities and households with dependent children are more vulnerable to income shocks. Among households that experienced an income shock:

o Minorities were 52 percent more likely to make late mortgage payments relative to non-minorities; and
o Dependents in the household increased the likelihood of late mortgage payments by 48 percent.

The FINRA Foundation's new study shows the extent to which lower-income Americans were especially unable to withstand an income shock during the Great Recession. Among households experiencing an income shock, those with incomes below $50,000 were 43 percent more likely to make late mortgage payments relative to their more affluent counterparts.

Don’t have an Emergency Fund? Here are three resources to help you start saving:

Emergency Savings: Why you should start saving for emergencies

Five Saving Strategies

Saving on a Tight Budget

The FINRA Investor Education Foundation is the largest foundation in the United States dedicated to investor education. Its mission is to provide investors with high-quality, easily accessible information and tools to better understand the markets and the basic principles of saving and investing.

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