Although, financial experts and number-crunchers are currently worried about what could happen should mortgage interest rates break the 5 percent barrier, a good number of consumers would not mind paying high mortgage rates, as long as they are able to buy and own a home.
According to a recently released survey commissioned by Bankrate, over 60 percent of respondents said they would rather own a home than rent one, even if interest rates move up by one percentage point or more; currently, 30-year fixed mortgage products are in the 3.60 to 3.90 percent range on most surveys.
Approximately a third of those surveyed said they are still interested in buying a home even if 30-year fixed-rate mortgages hit a rate of 10 percent or more. Interestingly, some 35 percent of respondents with a mortgage told Bankrate that they are not quite sure what their mortgage rates are.
Even with the prospect of the U.S. Federal Reserve increasing its overnight lending rate later on this year, there is a very, very small chance that rates would reach double digit levels. But some experts believe that U.S. consumers’ resilience regarding the prospect of homeownership is a good sign. “This reinforces or confirms that despite the trauma and the drama that we have seen in the real estate market in 2007, people still want to own a home, even if you are looking at potentially higher rates,” said Rutgers assistant professor of economics Daniel Roccato.
Regarding consumers’ plans for homeownership in 2015, about 11 percent of respondents told Bankrate that they are planning to get a new mortgage this year. Some 5 percent admitted that they are planning to refinance their existing mortgage. As for younger consumers, who have largely been shut out of the market due to unreasonable home price hikes, more of these potential or existing home buyers said they are more likely to take out a mortgage in 2015, may it be purchasing a home or refinancing an existing home loan.
Speaking to real estate experts, Bankrate got some quotes regarding how consumers are not aware about how a stratospheric rate hike could seriously compromise affordability. Roccato, for one, said that consumers traditionally “buy the payment instead of the rate,” while Schaffer Mortgage’s James Sangher agreed, saying that potential buyers traditionally underestimate how rate hikes could be the main variable affecting the affordability of a home, or the type of home one can afford.
Using a simple example, he said that buyers can afford a $300,000 home with the interest rate at 4 percent, and also a home valued at $162,500, but with the interest rate at 10 percent. The example uses the given of a 20 percent down payment.
Talking about refinancing, other experts chimed in, saying that there are not enough homeowners cognizant about their options to refinance if possible. “As consumers, once we get the mortgage, we sweep the rate under the rug and we don’t worry about it,” said Cherry Creek Mortgage adviser Edward Conarchy. “So we don’t look at rebalancing or refinancing opportunities.”