Mortgage rates have hit a multiyear high, yet who goes bankrupt first due to these rising rates?
Homeowners could be feeling the burn of rising mortgage rates as figures from the Mortgage Bankers Association show the average rate on a 30-year mortgage nearly recently hit its highest point since July 2011. This development makes it difficult for borrowers to find reasonably priced home loans, and also portends possible financial trouble down the road.
For one, the higher rates cause even more pressure on already stretched budgets. With limited disposable income, borrowers could be more vulnerable to taking on more debt than they can handle. This means going through with a more expensive loan to buy a home or stretching out the terms of their monthly payments, both of which could leave them on shaky ground financially in the long run.
And these higher mortgage rates also contribute to potentially lower housing values. This happens because buyers can’t afford the higher loan amounts needed to compete for the same home, driving down demand. As a result, sellers cannot get as much for their homes, and this further depresses housing values.
To make matters worse, borrowers who were already struggling due to prices explored for structuring their initial loan may be even worse off. For instance, those who opted for a variable-rate loan may now be facing higher rates despite the possibility of low initial mortgage rates.
Ultimately, this could turn into a painful cycle for many people. A growing number of borrowers who were once sailing smoothly on their mortgage payments could find themselves in serious financial trouble. They risk foreclosure or even lead to an outright bankruptcy.
In light of all this, there’s a need to be more vigilant when it comes to financial planning and planning for unexpected financial hardship now that mortgage rates have hit multiyear highs. One should consider the option of refinancing, especially if their current loan has a high interest rate, and seek professional help if they have any doubts about their loan structure. This could help them avoid the looming danger of bankruptcy due to the higher mortgage rates.