Mortgage Rates by Race and the Challenges of Home Affordability

Mortgage rates in the US vary significantly by race, with Black and Hispanic borrowers often facing higher rates than their white counterparts.

According to data, the average interest rate for a 30-year mortgage was 4.12% for white borrowers, compared to 4.35% for Black borrowers and 4.27% for Hispanic borrowers.

This disparity can have a significant impact on home affordability, making it harder for certain groups to achieve their dream of homeownership.

For example, a $200,000 mortgage with a 4.12% interest rate would result in a monthly payment of $955, while the same mortgage with a 4.35% interest rate would result in a monthly payment of $1,023.

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Mortgage rates vary significantly by race, with Black and Hispanic borrowers often facing higher rates. 20% of mortgages for Black borrowers and 21% for Hispanic borrowers came with mortgage rates exceeding 6%.

In contrast, only 18% of white borrowers and 15% of Asian borrowers had mortgage rates above 6%. This disparity is reflected in the average mortgage rates, with Black and Hispanic borrowers paying around 4.9% compared to 4.8% for white borrowers and 4.6% for Asian borrowers.

Some states, like Montana, Michigan, and Mississippi, have a higher proportion of Black borrowers with mortgage rates above 6%. In Montana, nearly one in three Black borrowers had a rate over 6%.

Additional reading: Mortgage Demand Falls amid Higher Interest Rates

Homeownership rates have increased across all racial and ethnic groups in the United States since 2012, with Asian Americans experiencing the most pronounced increase.

Black homeownership rates have increased modestly, but the gap between Black and white homeownership rates remains significant.

The Black homeownership rate increased by 1.6 percentage points from 2012 to 2022, resulting in nearly 950,000 more Black Americans transitioning to homeownership.

However, the Black and white homeownership rate gap continues to be higher than a decade ago, standing at 28 percentage points.

Mortgage rates also vary by race, with 20% of mortgages for Black borrowers and 21% for Hispanic borrowers coming with mortgage rates exceeding 6%.

In contrast, 18% of white and 15% of Asian borrowers' mortgages had rates above this threshold.

The average mortgage rates for Black and Hispanic borrowers stood at approximately 4.9%, compared to 4.8% for white borrowers and 4.6% for Asian borrowers.

These disparities in mortgage rates are a legacy of systemic housing discrimination in the United States.

For more insights, see: Current 7 Year Arm Mortgage Rates

The Home Owners’ Loan Corporation and the Federal Housing Administration (FHA) promoted residential segregation by shunning investments in city areas where people of color lived and placing restrictive covenants to keep middle-class neighborhoods white.

This discriminatory approach prevented people of color from accumulating wealth through homeownership, and its effects are still felt today.

The Fair Housing Act of 1968 prohibited discrimination concerning the sale, rental, and financing of housing based on race, religion, national origin, or sex, but its impact has been limited.

The effects of redlining and other forms of housing discrimination are still evident in the disparities in mortgage rates and homeownership rates between racial and ethnic groups.

Here are some key statistics on the racial disparities in mortgage rates and homeownership rates:

Mortgage rates can vary significantly depending on the borrower's creditworthiness.

In the United States, the Department of Housing and Urban Development requires lenders to ask about borrowers' race to ensure they aren't discriminating against minorities.

Banks are mainly focused on the creditworthiness of the borrower, not their ethnicity. They aim to get paid back and earn a profit.

Higher income and wealth levels can lead to lower mortgage interest rates. The higher your income and wealth, the lower your mortgage rate is likely to be.

The average credit score for an approved mortgage borrower is around 760, up from ~720 in 2009, due to tightened lending standards after the 2008-2009 financial crisis.

Research has shown that African-Americans and Hispanics are often offered higher mortgage rates, controlling for credit scores.

For your interest: Debt to Income Ratio for Second Home

Refinances increased dramatically in the seven counties, with a 269 percent rise from 2018 to 2021, and the nation saw an even larger increase of 295 percent.

The number of refinance originations rose from 26,532 to 98,033 in the seven counties, while the nation saw a total increase of 295 percent.

Non-Black homeowners saw a larger increase in refinances, both within the seven counties and in the nation as a whole. Here's a breakdown of the percent change in refinances for different groups:

Interestingly, in the seven counties from 2020 through 2021, Black homeowners saw refinances increase at a greater rate than non-Black homeowners, with a 69 percent increase compared to a 7 percent increase for non-Black homeowners.

If this caught your attention, see: Non Owner-occupied Mortgage Rates

Income is a significant factor influencing homeownership, with a higher income often associated with a greater ability to afford a mortgage.

According to the data, the median household income for White Americans is $83,000, significantly higher than the median household income for Black Americans, which is $43,000.

Education level also plays a crucial role in determining homeownership rates, with individuals with higher levels of education more likely to own a home.

For example, 71% of White Americans with a bachelor's degree or higher own a home, compared to 44% of Black Americans with the same level of education.

Family size and composition can also impact homeownership, with larger families and households with multiple generations more likely to own a home.

In fact, 63% of White Americans with three or more children own a home, compared to 43% of Black Americans with the same family size.

A unique perspective: Family Opportunity Mortgage Rates

Mortgage debt and affordability vary significantly across different racial and gender groups. White households are more likely to be mortgagors and homeowners, while Black households are more likely to be renters.

Households headed by women are more likely to be renters and less likely to be mortgagors than households headed by men. The largest gaps are between households headed by Black women and households headed by white men.

The likelihood of having a mortgage, owning a house, or renting varies a lot by race and gender. For example, Black households are more likely to be renters, with women being 57% and men being 45% renters, compared to white households where women are 43% and men are 53% mortgagors.

Here is a summary of the share of mortgagors, homeowners, and renters broken down by type of household:

Household debt inequality by race and gender is a significant issue in the US. White households are more likely to be mortgagors, with 53% of men and 43% of women having a mortgage.

Households headed by women are more likely to be renters, with 57% of Black women and 45% of Black men renting compared to 23% of white homeowners. The largest gaps are between households headed by Black women and households headed by white men.

White households are more likely to own a house, with 23% of households headed by men and 43% of households headed by women owning a house.

Intriguing read: Should I Refi My Mortgage

Affordability challenges across racial groups are a pressing issue in the US. In Colorado, 41% of Black homeowners spend more than 30% of their income on housing, compared to 24% of white homeowners.

Rising rental costs are eating into the disposable income of renters, making it harder for them to save for a down payment. In 45 states across the US, Black renters face greater affordability challenges than their white counterparts.

Some states stand out for having large disparities in housing affordability between white and Black renters. North Dakota, Wisconsin, and Nebraska are examples of this, with Black renters struggling to afford homes in these states. In North Dakota, only 4% of Black renters can afford to purchase the median-priced home compared to 24% of their white counterparts.

Efforts to increase affordable housing must be tailored to match the specific buying power of minority groups looking to purchase their first home. The data highlights the need for targeted solutions to address the racial disparities in housing affordability.

Here's a breakdown of the affordable home prices for different racial groups:

Mortgage denials and interest rates are two critical areas where disparities exist based on racial demographics. Black and Hispanic applicants experience higher denial rates for mortgage applications compared to their white and Asian counterparts, with denial rates of 26% for Black and 22% for Hispanic applicants.

These disparities are most pronounced in states like Mississippi, where Black applicants face a disparity of 17 percentage points and Hispanic applicants face a disparity of 8 percentage points compared to the average rate of white and Asian applicants.

Higher mortgage rates are another issue faced by Black and Hispanic borrowers. 20% of mortgages for Black borrowers and 21% for Hispanic borrowers came with mortgage rates exceeding 6%, a higher rate than white and Asian borrowers.

The average mortgage rates for Black and Hispanic borrowers stood at approximately 4.9%, compared to 4.8% for white borrowers and 4.6% for Asian borrowers. This translates to a higher cost of borrowing for Black and Hispanic households, which can have long-term financial implications.

Some states, such as Montana, Michigan, and Mississippi, have particularly high rates of Black borrowers with mortgage rates exceeding 6%. In Montana, nearly one in three Black borrowers had a rate over 6%.

Here's a breakdown of the denial rates for different racial groups: