DALLAS –The monthly costs for credit union members to service a residential mortgage and a vehicle loan purchase both increased in October, are up sharply over the past 20 months, according to a new analysis that shows how the strain on household income has grown.
According to Brian Turner, president and chief economist with Meridian Economics, the average monthly principal and interest payment for a $350,000, 30-year fixed-rate, first-lien mortgage increased $66 as the average mortgage rates increased from 6.75% to 7.03% in October, a whopping 55% increase, or $828 per month, since January 2021.
Similarly, said Turner, the average monthly principal and interest payment on a $25,000, five-year, A-paper vehicle loan increased $7 as the average vehicle loan rates increased from 3.64% to 4.25%.
Unlike mortgage rates though, this is only a 3% increase, or $13 per month, since January 2021, Turner added.
Loan-to-Value Metrics Threat
“Over the past couple of years, lenders, particularly credit unions, have been extending financing at relatively low rates and at elevated market values that have been rising well beyond the pace of consumer inflation,” said Turner. “This could threaten future loan-to-value metrics should the economy dig deeper into contracted growth and/or default rates start to rise.
“Moreover, with the recent uptick in mortgage rates and expected decline in demand for both purchase and refinancing applications, according to Axios, more than one-half of all residential mortgage lenders in business in 2021 are now out of a job in the mortgage industry with additional cuts yet to come,” Turner added.
In his blog posting, Turner cited Mortgage Bankers Association reports indicating that purchase lending during Q3 was down -22.4% from a year ago, while refinance lending was down -22.1%. “They project purchase financing to be down -29% year-over-year and refinance financing down -45% during Q4,” he added.
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