While the Fed has begun cutting interest rates, millions of Americans with mortgages are struggling with high interest rates and say it’s putting a strain on their overall finances.
A new report from TransUnion shows that mortgage payments, along with auto loans, are putting pressure on people, especially younger borrowers. Many took out their home loan in the past 24 months, while interest rates were elevated to an average of more than seven percent.
More than eight in ten respondents said their finances are strained by their current mortgage payment, rising to almost 90% of Millennials compared to 80% of Gen Zs, 75% of Gen Xers, and just 55% of Boomers. Three quarters of respondents have an interest rate on their mortgage of 6% - 7% with two thirds locked into fixed rates.
With the cost of living still squeezing household budgets most (80%) said they are considering seeking a lower cost loan in the next year, with the percentages by generation similar to the levels who said payments are a strain.
Better interest rates and cash-out refinances are the key drivers of potential switches with the latter maybe a good option for the 48% of US homes with a mortgage that are estimated to be equity rich, according to recent data. However, lowering the monthly payment is the main motivator and some may choose longer terms.
“For many consumers, their mortgage payment is their largest single payment each month and the one that seemingly strains their budget the most,” said Satyan Merchant, senior vice president and mortgage and auto business leader for TransUnion. “The upside is that it is a payment that can be refinanced if the economic climate allows for it, and with interest rates at long last beginning to fall, consumers should begin exploring this option.”
Auto loans are seen as stain on finances by 65% of respondents with around the same share saying they would consider refinancing to save between $50 and $149 per month.
For clients who may be considering making changes to their borrowing, ‘route one’ may not be the best option with TransUnion suggesting that credit unions may be able to offer their members rates and service that larger more traditional banks cannot.
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