A good deal is something that can bring people in the US together.
With mortgage rates close to 7% and home prices at all-time highs, now is a tough time to buy a home. Mortgage rates were at all-time lows during the COVID-19 pandemic, which was good for people who already owned a home or refinanced their mortgage.
Vice President Kamala Harris, who is expected to be the Democratic presidential nominee, lives in one of these homes. Federal records filed at the end of 2021 and first reported by the Wall Street Journal show that Harris and her husband, Doug Emhoff, own a home in Los Angeles with a 2.625% mortgage rate. The Journal said that the couple refinanced their mortgage in 2020.
Some people who want to buy a house have put their plans on hold in the hopes that mortgage rates will drop significantly. However, Fannie Mae’s chief economist told MarketWatch that the 3% mortgage rates during the pandemic were “anomaly.” He also said that based on past trends, a more normal rate for the 30-year fixed rate would be 6%.
When Harris refinanced in late 2020 or early 2021, mortgage rates were at all-time lows because of the pandemic. Chen Zhao is the head of economics research at Redfin, a real estate brokerage firm.
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A study released in May by Freddie Mac found that more than six out of ten mortgages have rates below 4%. These homeowners got these loans when they bought a house or when they refinanced. A rate of less than 3% was used to start almost 30% of mortgages. People who own homes and don’t want to lose their low rates may be hesitant to sell and take on a higher rate. This is called the “lock-in effect,” and it keeps the number of homes for sale low.
On the other hand, Ohio Republican Sen. J.D. Vance, who is running to be vice president, has a mortgage rate of less than 4%.
According to Senate financial disclosures, Vance, who was just named running mate for Republican presidential nominee Donald Trump, has a home with a 3.875% mortgage rate. Mansion Global says he paid $1.6 million for the house in Alexandria, Virginia. CNN Money says he also owns a house in Cincinnati, Ohio, and a townhouse in Washington, D.C.
BourseWatch asked both the Harris and Trump campaigns for comment, but they did not respond.
Even though both Harris and Vance’s mortgages have low interest rates, they are different in one important way: the length of the loan. Harris chose an adjustable-rate mortgage with a fixed rate for the first seven years, in 2016 and again when she refinanced in 2020. Vance chose a traditional 30-year mortgage.
Zhao from Redfin said that adjustable-rate mortgages were more common before the subprime mortgage crisis. At that time, they made up about a third of all mortgages that were made. The Mortgage Bankers Association says that they now make up about 6% of all mortgage applications. A seven-year ARM like the one Harris has is also not as popular, Zhao said, since most people choose ones that are fixed for the first five years.
Forbes says Harris’s net worth is $8 million. Trump’s is $7.5 billion, and Vance’s is $10 million.
The Wall Street Journal said Harris and Emhoff’s home in Los Angeles is worth $5 million. Zhao thought that as long as the rate stayed the same for the first seven years after the $2 million refinancing in 2020, the mortgage payment would be about $8,000. The economist also said it was strange that the couple chose an ARM over a fixed-rate mortgage.
She said, “She got that mortgage at a time when getting an ARM wasn’t really a good idea because the ARM rate wasn’t that much lower than the fixed rates.” “So it probably would have been smarter all around to get a fixed-rate loan at that time. But ARMs often do make sense, especially for homeowners with higher incomes, and they’re not used enough.”
Fixed-rate mortgages vs. adjustable-rate mortgages
Zhao said that an ARM might make sense for a smart homeowner looking for a deal while mortgage rates are still around 7%.
At the start of the loan term, rates are lower for ARMs. As of July 12, the rate for an ARM was 6.33% and the rate for a fixed 30-year mortgage was 6.87%. An ARM could be helpful for people who are looking for a home and know how long they want to live there.
Zhao said, “There is no reason to pay more for a 30-year fixed-rate mortgage if you plan to move in the next five to ten years.” However, Zhao said that ARMs have become much safer thanks to stricter underwriting standards and limits on how high and how quickly rates can rise. This is because ARMs were linked to the subprime mortgage crisis.
For homeowners who want stability, a 30-year fixed-rate mortgage may be better because the payment stays the same over the long term. Borrowers don’t have to worry about whether their mortgage rates will go up or down, so they can plan their spending and save more reliably.
