2020’s Cities with the Most Overleveraged Mortgage Debtors
Buying a home represents an important milestone for most consumers. But for those who dive in to the deep end of real estate without a financial safety net, the decision could lead to buyer’s remorse in the long run. Mortgage rates hit an all-time low recently due to the negative effect of the coronavirus pandemic on the U.S. economy. However, while the 15-year fixed-rate average and five-year adjustable rate average have continued to drop, the 30-year fixed-rate average has begun to rise again. In the wake of overall lower rates, many homeowners have looked to refinance, and many other Americans are wondering if now is a good time to buy.
As with any major financial decision, it’s wise to improve one’s credit score before applying for a mortgage in order to qualify for the best possible rates. Using a Mortgage Calculator can also help to determine an affordable monthly payment and realistic payoff timeline, whether borrowing for the first time or refinancing an existing loan. Without a good grasp of how to pay off mortgage debt, consumers might find that debt unsustainable.
In this report, WalletHub determined which cities are home to the most overleveraged mortgage debtors by comparing the median mortgage balances against the median income and median home value in more than 2,500 cities. Read on for our findings, expert homebuying advice and a full description of our methodology.
Main Findings
Cities with the Highest Mortgage Debts
| Percentile Rank* | City | WalletHub Home Overleverage Score** | Median Mortgage Debt | Median House Value | Median Income | Mortgage Debt-to-Income Ratio | Mortgage Debt-to-House Value Ratio |
|---|---|---|---|---|---|---|---|
Ask the Experts
As one of the biggest financial transactions of our lives, the purchase of a home requires careful assessment of our finances as well as the potential impact of a mortgage. For advice on both buying and owning a home, we asked a panel of experts to weigh in with their thoughts on the following key questions:
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Is now a good time to buy a home?
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What are the most common financial mistakes people make when buying a home, and which are most costly in the long-term?
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If someone is currently overleveraged and has trouble affording their mortgage payments, what steps should they take?
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Is there any way for an individual to tell if his or her local housing market is overpriced?
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Are there certain housing markets or circumstances in which it is acceptable to be overleveraged in mortgage debt? If so, how much is too much?
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Scott Roark
Clinical Professor, Colorado State University
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Daniel Trujillo
Assistant Professor of Teaching, Denver University
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K. Matthew Wong
Ph.D., CFA, JD – Professor of Finance, Director, MBA Programs, Managing Editor, Journal of Emerging Markets, Tobin College of Business, St. John's University
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Jeffrey Robert
Ph.D. – Collegiate Assistant Professor of Real Estate, Pamplin College of Business, Virginia Polytechnic Institute and State University
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Matthew Lifson
Professor, Department of Economics, Finance and Real Estate, Leon Hess Business School, Monmouth University
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Sean Wilkoff
Visiting Assistant Professor, Pennsylvania State University
Scott Roark
Daniel Trujillo
K. Matthew Wong
Jeffrey Robert
Matthew Lifson
Sean Wilkoff
Methodology
In order to determine the cities where people are most overleveraged on their homes, WalletHub first calculated the ratio between the median mortgage debt (based on TransUnion data from September 2019) and the median income in each of 2,530 U.S. cities. Next, we calculated the ratio between each city’s median mortgage debt and its median home value. Our sample considers only the city proper in each case and excludes the surrounding metro area.
Note: The median income for each city is based on the 2018 earnings of individuals aged 16 and older who worked full-time year-round, according to the U.S. Census Bureau's American Community Survey. The figure excludes income from sources other than work.
For each ratio, we determined a score, assigning 50 points to the city with the highest ratio and 0 points to the city with the lowest. For the cities in between, we linearly extrapolated between the two extremes.
We then calculated the overall ranking, or Home Overleverage Score, by adding the two scores. An overall percentile rank of 99, as reflected in our Main Findings, corresponds with the city with the highest total score and therefore represents the “most overleveraged.”
Mortgage Calculator
Before accumulating unsustainable debt, it’s important to use a Mortgage Calculator like the one below to help you determine your monthly mortgage payment and the time it would take to pay off your debt.
Loan Info
Mortgage Summary
| Year | Interest | Ending Balance |
|---|---|---|
Total Home Ownership Cost
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Tips
Making smaller payments every two weeks instead of once a month saves you interest and pays down your loan faster. How? By making payments every two weeks you actually end up paying more per year (the equivalent of one extra monthly payment).