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American are shedding their mortgage debt

USA Today has a story on an interesting trend:

Americans are reducing mortgage payments at a record clip, directing cash that once went for debt into consumer spending and savings.

Low interest rates, defaults and refinancings have shaved more than $100 billion off the nation’s annual mortgage bill — an amount comparable to all unemployment benefits for one year or this year’s Social Security payroll tax cut.

“This is a form of economic stimulus that goes to Main Street rather than Wall Street,” says Nicholas Carroll, a journalist on consumer finance and author of Walk Away From Debt for a Better Future. When freed from a mortgage payment, people’s first purchases tend to be necessities, such as socks and underwear, he says.

Homeowners have trimmed interest payments alone by 11% — or $67 billion a year — from the peak in 2008, according to the Bureau of Economic Analysis (BEA). The savings come equally from grabbing lower interest rates and reducing what’s owed by paying down principal or defaulting on loans.

This is another positive byproduct of the real estate bust. Home prices keep coming down, and more and more Americans are underwater on their mortgages. So many of them are walking away. Homeowners with jobs and good credit are taking advantage of low mortgage rates to refinance and lower their payments.

This results in more disposable income, so Americans can spend more on typical consumer products.

  

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