The average size of a home loan has swelled to the biggest amount on record, according to the Mortgage Bankers Association’s survey, which dates back to 1990. The larger mortgage size not only reflects Americans purchasing pricier properties, but also shows they’re more leveraged now too, MarketWatch reports.
The median mortgage size is now more than five times as big as the median annual income. In 1990, the median mortgage size was only about 3.3 times the median annual income.
Loan sizes may be getting bigger because homeowners are purchasing bigger homes nowadays (the median home size was 1,630 square feet in 1989 and is 1,900 square feet in 2016). Also, homeowners have much lower interest rates than they did back then (the 30-year fixed-rate mortgage averaged 10.32 percent in 1989 compared to the 4.10 percent average today).
Also, homeowners aren’t bringing as big of downpayments to the closing table. (What was once thought of as the standard 20 percent down is hardly standard.) The median downpayment in 2016 was 10 percent; for first-time buyers, it was 6 percent. That has made homeowners more leveraged now than they were a decade ago, MarketWatch notes.
Source: “Americans Are Taking Out the Largest Mortgages on Record,” MarketWatch (April 5, 2017)