Bigger homes, more expensive inventory, and lower down payments all add up.
For the past few years, the housing market has been unbalanced. Strong demand and lean supply keep pushing prices higher and higher.
On Wednesday, a fresh piece of data confirmed that trend. The Mortgage Bankers Association’s weekly purchase loan data showed that the average size of a home loan was the largest in the history of its survey, which goes back to 1990.
Higher prices have a few different effects on the market. Buyers have to make tradeoffs on the kinds of homes they can afford, or may be shut out of ownership altogether.
They may also adjust their borrowing. Larger mortgage sizes may reflect not just more expensive properties, but also more leveraged ones.
The 20% down payment is a relic: the median down payment in 2016 was 10%. For first-time buyers, it was 6%. First-timers and other buyers of less-expensive homes are more leveraged now than they were at the height of the housing bubble a decade ago.
Home loan sizes aren’t the only things that have changed in the years since MBA started its survey. Back at the start of the survey, the median mortgage size was only about 3.3 times the median annual income. It’s now over five times as big – though buyers get bigger homes and lower interest rates.
Mortgage loans and mortgage refinancing loans, types of personal loans, differ dramatically in loan amounts, duration and interest rates. Approval for these loans is not based solely on capacity of return also on the line of credit and/or credit history of the borrower.
Mortgage loans can be either fixed or adjustable, with offered rates varying significantly from lender to lender and from one borrower to another. Adjustable rates are considered riskier because the payment can change significantly. In exchange for the risk associated, homeowner enjoy a much lower interest rate, sometimes lower than that of a 30 year fixed rate.
Two step mortgages, has the same interest rate for part of the mortgage and a different rate for the rest of the mortgage. The interest rate adjusts in accordance to the rates of the market. This may wither work to the advantage or disadvantage of the borrower. However this option likewise gives the borrower the opportunity to decide between a variable interest rate and a fixed interest rate at the adjustment date.
Balloon mortgages are much shorter return term and work like a fixed-rate mortgage. The monthly payments are usually lower because of a large payment at the end of the loan.
All mortgage loan providers are regulated by federal and state entities and must follow and adhere to all laws in terms of lending and non-payment. It is important to understand the laws and regulations that apply to your loan and your lender before you take out a personal loan.
Important Information on Mortgage Loans
There are always risks when borrowing and there are consequences if the loan is not paid off. If the loan is not paid, you may be reported to a collection agency and face financial and credit score penalties.
Regardless of the length of the loan, all loans require repayment. Borrowers agree to pay back the loan in a particular amount of time and if borrowers are unable to do so they face legal implications.