Debt Becomes Unavoidable Reality For Many Homeowners Facing Unexpected Expenses

Nearly one in five American homeowners have incurred debt to cover unexpected home maintenance costs, most resorting to high-interest solutions like credit card debt.

According to a Bankrate survey issued this week, among the 19% of homeowners who have taken on debt due to unforeseen home maintenance costs, 60% relied on credit card debt, 6% opted for personal loans, and 5% secured a second mortgage. Those burdens were most commonly triggered by costly repairs like roof replacements, which average $9,392, HVAC system overhauls, which average $7,000, foundation repairs, which cost $5,017, termite treatments, priced at $2,500, and water heater installations or replacements, which average $1,312.

While repairs often warrant the financial burden due to their long-term benefits, the immediate financial impact of unexpected costs can sting homeowners, especially those who purchased their homes with high interest rates. 

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The burden of those unforeseen expenses does not fall evenly across all demographics. According to the survey, younger homeowners are most vulnerable to financial shocks.

About 31% of Generation Z homeowners and 26% of millennials have resorted to debt to manage the hidden costs of homeownership, compared to just 19% of Generation X and 13% of baby boomers. The trend suggests that younger homeowners may be less prepared for the financial realities of home maintenance, potentially due to shorter credit histories and smaller savings reserves.

"When it comes to paying the inevitable expenses associated with homeownership, prioritizing savings is the key to avoiding a domino effect of further borrowing costs," Bankrate senior economist Mark Hamrick said in the report. "The hidden costs of homeownership serve as another in a long string of arguments in favor of prioritizing savings."

Experts at Bankrate suggest homeowners save between 1% and 4% of their home’s value each year to cover maintenance and repairs. For example, for a home valued at $400,000, this means preparing an annual budget of $4,000 to $16,000. The range accommodates varying needs, depending on the age and condition of the property. Newer homes may require less, while older properties could demand more frequent and expensive upkeep.

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The report said that preparing for the lifespan of home features is another key to managing expenses. For example, Bankrate noted that heating and air conditioning systems typically last 10 to 12 years, while roofs may need replacement every 20 years.

Being aware of the timelines allows homeowners to plan financially for expenditures before they become urgent.

To that end, the report found that about 24% of American homeowners have set aside funds specifically for home repairs and maintenance, however, the demographics vary.

Thirty percent of Generation Z homeowners have set aside funds for home maintenance, while 25% of millennials are financially preparing for property repairs. About 20% of Generation X homeowners have allocated money for such expenses, and 24% of baby boomers reported saving.

Over one-fifth of homeowners (21%) plan to renovate or enhance their homes within the year, while 6% of respondents are considering selling their homes this year.

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