Middle-class homebuyers think they can “always refinance when rates come down”

According to a loan officer, there is a trend among middle-class homebuyers who are taking on $7,000 mortgages with the belief that they can quickly refinance in the future when interest rates decrease.

In December 2021, borrowers secured a 30-year fixed mortgage rate at an average of 3.1%. With this rate, a borrower could obtain a $700,000 mortgage, resulting in monthly payments of $2,989 for both principal and interest.

On Wednesday, it was found that a mortgage of $700,000 taken out at the current average mortgage rate of 6.90% would require a monthly payment of $4,610; this is significantly higher, amounting to $583,000 more over 30 years, compared to a mortgage issued at a lower rate of 3.1%. Including insurance and taxes, the monthly payment could exceed $6,000. Furthermore, it is essential to note that the calculation fails to consider the significant increase in U.S. home prices. In June 2022, home prices were 12% higher than in December 2021 and a staggering 39% higher than in June 2020.

Moving Markets

John Downs, a senior vice president at Vellum Mortgage, is one of the mortgage planners tasked with delivering the difficult news to potential homebuyers. According to Downs, most buyers in 2023 are aware of the situation, which is different from the previous year. According to the loan officer, the initial surprise of high prices is diminishing.

Before speaking with Fortune, Downs concluded a call with a middle-class couple from Washington, D.C. They informed him that they anticipated a mortgage payment of approximately $7,000.

I just received a call from a regular household in the area. One individual earns a salary of $150,000, while the other individual earns $120,000. The total amount is $270,000, and the payment goal is $7,000. Downs admits that he is still adjusting to hearing people openly express their thoughts.

Before speaking to Downs, who works in the Baltimore and Washington D.C. areas, these borrowers had already decided that their high mortgage payments would only be temporary. They plan to refinance to a lower price when mortgage rates decrease.


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