New data has revealed a significant financial trend in the United States, showing that Americans are now spending nearly as much on interest payments for credit cards and other consumer debts as they are on mortgage interest. According to the US Bureau of Economic Analysis, non-mortgage interest payments reached a record high of $573.4 billion annually in January, coming close to the $578.3 billion spent on mortgage interest in the fourth quarter of the previous year.
This near parity in the amounts spent by US borrowers to service mortgage and non-mortgage debt is a unique development not seen in data going back to the 1970s. The shift has occurred as Americans took advantage of favorable home loan conditions in the 15 years post the 2008 financial crisis, particularly during the pandemic when interest rates dropped to historic lows, allowing for 30-year mortgages to be secured at 3%.
However, the landscape for other types of consumer credit has changed since 2022, with Fitch Ratings highlighting that the effective rate on US mortgage debt was 3.7% in the third quarter of the previous year, while credit card interest rates stood at a significantly higher 21.19% during the same period. This discrepancy raises concerns about the ability of Americans to manage their debt obligations, especially as millions of borrowers resumed paying student loans in the fourth quarter of the previous year.
Despite the rising costs of other debts, mortgage debt remains the largest financial commitment for most Americans. The average American debt load reached $104,215 in the fourth quarter of 2023, primarily driven by $12.25 trillion in mortgage debt. In comparison, credit card debt amounted to $1.13 trillion at the end of the previous year.
