Wealthy home buyers are amping up their use of mortgages as the rest of the U.S. pulls back in the face of rising interest rates.
Of the home buyers purchasing new pads in the $2 million to $5 million range in July, 46 percent of them used mortgages, according to new data from RealtyTrac cited by CNBC. This is up dramatically from the 27 percent of buyers in this range who used mortgages during the same month in 2012. Wealthy buyers in the slightly lower $1 million to $2 million range also widely used mortgages, with 63 percent turning to the financial tool. That’s up from 49 percent in July 2012.
Nationwide, a whopping 40 percent of homebuyers purchased their properties with cash in July, compared to 31 percent at the same time last year.
The ominous loom of rising rates serves as an incentive for wealthy borrowers who use mortgages as financial tools, while they make buying less affordable for middle-income and first-time buyers, according to housing economists and luxury real estate brokers.
“With mortgage rates picking up, some of these folks decided to get off the fence and take advantage of the low rates,” Daren Blomquist of RealtyTrac told CNBC. “With the wealthy it’s more of a financial decision.”
Interest rates can also vary according to the size of loans. So-called jumbo mortgages, or loans over $417,000 in most parts of the U.S. and over $625,500 in high-priced areas like New York City, are now lower than rates for “conforming loans,” which is unusual. [CNBC] — Julie Strickland