Hustle Mindset

Understanding Adjustable Rate Mortgages And The Impact On Black America


Home prices are moving down, but not as fast as interest rates are moving up. As the Federal Reserve aggressively raises the federal funds rate to try and slow inflation, the average 30-year mortgage rate surpassed 7 percent this week, making homeownership even more inaccessible for millions of Americans.

“As rent, housing costs, and mortgage rates soar, Americans are facing more barriers than ever to accessing quality affordable housing,” wrote Rep. Gwen Moore (D-Wisc), a member of the House Select Committee on Economic Disparity and Fairness in Growth in a Newsweek opinion piece. Moore’s district includes most of the city of Milwaukee, where 27 percent of the population is Black.

Black homeownership is lower than a decade ago at 43.4 percent, while homeownership rates for Hispanic Americans are 51.1percent, according to the National Association of Realtors.

The gap has widened and Black Americans continue to face significant obstacles to homeownership, said Jessica Lautz, vice president of NAR demographics and behavioral insights.

Just 20 percent of Black households have incomes of more than $100,000 compared with 35 percent of white households and 25 percent of Hispanic households.

As interest rates and mortgage payments rise, adjustable-rate mortgages (ARMs) will be going up, adding more pressure to households fighting inflation and facing potential layoffs in a recession.

ARMs start with an initial fixed-rate period. When that period expires, the interest rate can rise or go down, depending on Fed policy. A loan cap limits how high the rate can increase. ARMs are designed to protect buyers against big rate increases when the adjustable period begins.

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A lot more homebuyers are turning to adjustable-rate loans. These can be more affordable at first but they come with a big risk – that your mortgage payment might go up a lot in the future. 

Adjustable-rate mortgages made up almost 10 percent of all new home loan applications as of mid-2022 — a 15-year high. They become more attractive to buyers who prefer not to lock in a high rate, according to the Mortgage Bankers Association.

“They’re scary because they can adjust to a higher payment than you can afford,” said NPR’s Chris Arnold. “These loans can be tantalizing. They start out with a lower interest rate – sometimes a full percentage point lower.”

A home bought at the national median asking price of $435,050 in August 2022 costs nearly $1,000 more per month than it did in August 2021, when the average mortgage rate was 2.88 percent and the median home price was about 14 percent lower, said Danielle Hale, the chief economist at

The Fed’s efforts to slow inflation by slowing the economy and reducing demand risk sending the U.S. into a recession and causing widespread unemployment.

Fed Chair Jerome Powell acknowledged on Sept. 21 that rate hikes would cause pain for the U.S. economy and push up unemployment. By the end of 2023, unemployment is expected to rise from its current 3.7 percent to 4.4 percent, adding about 1.2 million unemployed people, according to Omair Sharif, the founder of research firm Inflation Insights.

Those job losses will disproportionately affect some of the most vulnerable people, including Black employees, studies of past downturns have shown.

Black workers will be among the first to lose their jobs because they’re disproportionately concentrated in industries sensitive to economic downturns, ABC News reported. Racial discrimination often influences choices made by companies about which workers to fire, economists said.

“The Fed’s actions really do mean some disparate impact for Black workers in the American economy,” said Michelle Holder, a labor economist at John Jay College of Criminal Justice, in an ABC report.

In early 2020 at the start of the pandemic, Black workers at every education level saw higher unemployment than white counterparts, a RAND Corporation study found.

“Americans on the edge of financial ruin face this issue in their daily lives and have never had equal access to the (housing) market,” Rep. Moore said in an article co-written by Rep. Jim Himes (D-Conn.), chairman of the House Select Committee on Economic Disparity and Fairness in Growth.

“Understanding the legacy of historic inequities and discriminatory policies can help us build a more inclusive economic future in which affordable, quality, and safe housing is possible for all Americans,” Moore wrote.

Black American families have been subject to redlining — shut out by banks unwilling to lend in neighborhoods considered “risky.” The Civil Rights Act of 1968, including Title VIII—also known as the Fair Housing Act — prohibited housing discrimination on the basis of race and national origin.

“But this step in the direction of racial equity didn’t fully dispel the consequences of discrimination and segregation,” Moore wrote. “Today, Black homeowners receive lower home appraisals and higher-cost mortgages.”

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