A COUPLE have been trapped in their home after securing a low mortgage a decade ago, meaning they can’t move without huge costs.
Bob and Terri Wood of Mobile, Alabama, purchased a 5,000-square-foot home with a pool nearly 10 years ago.
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However, lifestyle changes mean they hope to move on.
The pair admitted it’s “probably time to downsize” when speaking to CNBC.
In addition to this practical decision, they also want to be closer to their grandchildren who live in Tennesee.
However, the mortgage they signed almost 10 years ago means that if they move, they will be forced to fork out.
“We’re in year 10 of a 15-year, 3.125% fixed mortgage,” Bob explained, noting that changing now would force them to pay a much higher rate.
“We just don’t want to pay that much interest.”
Due to their cheap mortgage, moving forward would see them finance a new property at a much higher rate, which would cost them hundreds more every month.
Experts call this the “golden handcuff effect”.
This is where a low mortgage rate will be a financial incentive to attract homeowners and deter them from moving forward unless they are willing to pay more.
As home prices and interest rates soar, those with low-rate mortgages are “best advised to stay where they are,” Tomas Philipson, a professor of public policy studies at the University of Chicago, told the outlet.
He added that there is “a stock of people with very cheap mortgages” who face this dilemma.
About 82% of consumers feel “trapped” in their low-rate mortgages, according to a survey conducted by Realtor.com last year.
Meanwhile, roughly one in seven homeowners with no plans to sell told researchers that their low-rate mortgage is their main
“reason to remain on the sidelines.”
According to Wood, a change is more likely to be on the cards if average rates for a fixed mortgage are around the “4% to 5% range.”
However, the going rate for a 30-year fixed-rate mortgage is about 7%, according to Bankrate.com, per CNBC.
COMMISSION COSTS
Here’s what Joy Dumandan, consumer editor at The US Sun, had to say…
The dream of becoming a homeowner comes with a price.
There are unexpected costs associated with buying a home. It is better to save for additional expenses.
The biggest upfront fees are closing costs.
These are fees you must pay at the closing of your home, when the title to the property is transferred from the seller to the buyer.
The commission earned varies from state to state.
Expensive payment
A recent $418 million settlement with the National Association of Realtors (NAR) is changing Realtor commission rates.
The lawsuit alleges that the real estate industry conspired to keep broker commissions at around 5% to 6% of the home’s price.
Plaintiffs in the suit argued that commission rates advertised on a multiple listing service (MLS), a database used by agents to find homes for clients, allowed real estate agents to prioritize homes with higher rates.
Home sellers may not be aware that they could negotiate buyer’s agent compensation, which appears in the MLS, with the listing agent.
NAR did not admit any wrongdoing, but agreed to change its guidelines to make commission rates more transparent to consumers.
This could result in rates dropping 1% to 2% for home buyers and sellers.
Who pays the commission?
The seller pays the full commission at closing, but it is usually included in the price of the home.
So, for example, if a commission is 6% on a $300,000 home, that would equal $18,000, which is split between the buyer’s and seller’s agents.
A buyer may offer to pay some of the real estate agent’s fees. This strategy can be used to convince a seller to accept a buyer’s offer.
It is important to know your rights, which will be spelled out in the real estate agent contract when you sign to hire a real estate agent.
When mortgage rates are above 5%, homeowners are twice as likely to sell their homes. However, about 80% of people with mortgages have a rate below 5%, according to Zillow.
Bankrate chief financial analyst Greg McBride explained to the outlet that until inflation reduces and stabilizes, mortgage rates will not fall to this more desirable value.
The US Sun previously reported on a mother who was also being negatively affected by the “golden handcuff effect” after purchasing a home with a $1,300 mortgage.
Mother of two Jennifer Lovelace purchased her first home for $215,000 in 2020.
However, as her family grew, she realized that a move was on the cards, but that her 3.25% mortgage rate made the move financially “impossible.”
This story originally appeared on The-sun.com read the full story
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