These Are the States Where Mortgage Debt Is Rising Fastest

Mortgage debt is rising fast. Here's a look at the states where it's happening.

Mortgage debt is rising fast. Nationwide, the average balance owed on a mortgage is $196,014, up 2.5% from the year prior and 6.4% from nine years ago.

You’d expect to hear about soaring mortgage debt in pricey places like New York and San Francisco. But — surprise — the top five states where mortgage debt climbed the fastest in the past 12 months were North Dakota, Texas, South Dakota, Kansas and West Virginia, according to new data from Experian.

To be sure, traditional real estate hotbeds aren’t getting off easy. As far as average mortgage debt goes, Washington, D.C. tops the list at $385,159, followed by California, Hawaii, Maryland, Massachusetts and New Jersey. New York, Virginia and Connecticut are close behind.

And traditionally less expensive markets are catching up quickly.

Over the past nine years, when total debt in states like California and Illinois was essentially flat, mortgage debt soared by 52.29% in North Dakota. It was up sharply in Wyoming (32.36%), Louisiana (27.18%) and Texas (27.08%) as well.

Of course, in these traditionally poorer states, mortgages had plenty of room to grow. For example, over those nine years, average mortgage debt in North Dakota rose from $99,833 to $152,039. While that’s a big increase, a $159,000 mortgage balance still looks great to Californians, who typically owe more than twice as much.

What’s Driving the Trend

The obvious explanation for rising mortgage debt is rising prices, which lead to larger loans.

“This list definitely lines up with trends in median prices,” said Daren Blomquist, senior vice president at ATTOM Data Solutions, which studies the housing market. “States with the highest median home prices mean higher loan amounts for purchase mortgages.”

The overall housing market comeback explains a lot of the increase, but local factors matter too, said Experian’s Susie Henson.

“North Dakota and Wyoming … This is purely related to the oil boom and bust economy,” she said. “When oil was about $60 a barrel, North Dakota had an instant demand for housing because of the flood of workers who came to the state for work. Personal income grew, people bought houses.”

The share of homes that are underwater also contributes, Blomquist said. Underwater homeowners generally can’t refinance or take out home equity loans due to poor credit. (You can view two of your credit scores for free on Credit.com.)

“Homes that have not yet regained their equity lost during the housing downturn by definition will not be selling for higher price points and higher loan amounts, and the owners certainly won’t be able to do cash-out refinance,” he said.

The reverse is also true. As regions soak up their underwater inventory, thanks to rising prices, existing owners can increase their mortgage balances. ATTOM said the number of “seriously underwater” U.S. homeowners has decreased by about 7.1 million since 2012, an average decrease of about 1.4 million each year.

Demographics could also be playing a role.

Older populations mean older mortgages with shrinking balances. More first-time buyers mean “younger” mortgages with larger balances. EllieMae, a mortgage processing company, publishes a “Millennial Tracker” with data on places where young adults make up a large share of buyers. It includes several metro areas in Texas, the Dakotas and Kansas showing young people moving there, which has helped lift the overall mortgage debt total.

For example, millennials, at the time of this writing, make up 37% of buyers in Wichita, Kansas; 44% in Sioux Falls, South Dakota; and 53% in Odessa, Texas. In San Francisco, only 18% are young buyers. In the New York/New Jersey area, only 25% are young buyers. That’s something to think about.

The Return of Low Down Payment Loans 

Another lesson from the data is that low down payment loans are back. Blomquist said his firm’s data shows that the “percent down payment” on new mortgages hit a four-year low in 2016.

According to Zillow, in 2009, fewer mortgages were obtained with 5% or 10% down payments, and nearly half of buyers put 20% or 25% down. In recent years, a 5% down payment had become “just as common as a 20% down payment.” (Here’s how to determine your down payment on a home.)

“Higher home prices, a lot of times, mean lower percent down payments, so that rings true with the cycle,” said Logan Mohtashami, a California mortgage broker and economics expert.

Low down payment home loans are on the long list of suspects to blame for the last decade’s housing bubble. Would-be homebuyers who feel uneasy about low down payment loans can look to places in the country where real estate is cheaper, but as cheaper markets “catch up,” there might be another option — looking in areas they may have thought were too expensive before, such as New England.

The five states where mortgage debt grew the slowest last year were Vermont, Connecticut, Wisconsin, Ohio and Rhode Island. In each state — three of which are in New England — total debt remained essentially flat.

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3 Easy Ways to Pay Off Your Mortgage Faster

These tips are your ticket to mortgage-free living.

As long as you’re alive, you have to live somewhere and, generally speaking, you have two options: Rent an apartment (or a home) and line your landlord’s pocket; or buy a home, and over time, hopefully line your own.

This premise is one of David Bach’s most important messages. The author of the New York Times bestseller “The Automatic Millionaire,” is a firm believer in the idea that real estate is critical to building wealth. In fact, he says buying a home is one of the three most important actions people can take in pursuit of financial security.

“I’ve been a lifelong proponent of home ownership,” says Bach, author of 11 best selling books. “How do you build real wealth on an ordinary income? It’s not very sexy, but it’s a simple, timeless approach: Buy a home.”

It’s not merely the act of purchasing a home that Bach advocates. The secrets to financial success that he offers in “The Automatic Millionaire,” include urging readers to pay their homes off early via an approach he calls “automatic debt-free home ownership.”

It may sound radical to some, but according to Bach, who spent nine years as a financial adviser at Morgan Stanley, the common denominator among all of his clients who were able to retire early was that they had paid off their homes early.

Here’s Bach’s approach to debt-free home ownership.

1. Establish a Biweekly Mortgage Payment Plan

A biweekly payment plan is exactly what the name implies. Instead of only making monthly mortgage payments, split the payment down the middle and pay half every two weeks.

When you make a payment every two weeks, (instead of just one per month,) you end up making one extra month’s worth of payments annually. In other words, over the span of a year, you’re making 26 half payments, which is the equivalent of 13 full payments.

“By doing this, something miraculous will happen. Depending on your interest rate, you can end up paying off your mortgage early — somewhere between five and ten years early” he says in the book.

Additional Benefits of Biweekly Payments

The biweekly payment approach also saves the homeowner thousands, if not hundreds of thousands of dollars, in interest. (Having a good credit score can help you save on interest, too. If you don’t know where your credit stands, you can get your two free credit scores, updated every 14 days, on Credit.com.)

In his book Bach provides the example of a 30-year-mortgage on a $250,000 home. If the interest rate on that mortgage is 5%, then the interest paid over the life of the loan will be about $233,139. When paid biweekly, the same mortgage instead costs about $188,722 — a savings of more than $44,000.

Establishing a biweekly payment plan merely requires calling your lender. If the mortgage is held by a large bank, they may refer you to a third-party that handles payment processing.

But one critical point Bach makes in the book is this: Before signing onto biweekly mortgage payments ask the servicing company what the fee is for the program and what they do with your money when they receive it. The second question is particularly important because some companies hang onto the extra money you’re putting toward the mortgage and send it to your mortgage holder all at once at the end of the month.

You want the extra payments applied to your mortgage as soon as possible, so that you’re paying down the mortgage faster.

You also cannot just split your monthly mortgage payment in half yourself (without talking to your mortgage holder, bank or other servicing company) and mail in payments every two weeks. The bank may send the extra payment back to you, unsure of what to do with it.

This trick can also work for paying down your credit card balance faster. (Here are some other tips for paying off credit card debt.)

2. Pay Extra Each Month

The next approach to debt-free home ownership outlined in Bach’s book is a plan he calls “No-Fee Approach No. 1.” It involves merely adding 10% to whatever your monthly mortgage payment happens to be. If your monthly payment is $1,342, pay an extra $134 dollars each month. (Sending the bank $1,467 per month instead of $1,342.)

This approach leads to paying off a home in 25 years, instead of 30, saving about $44,000. However, Bach urges making the extra 10% automatic, so that you don’t come up with excuses not to do it. In other words, have the $1,467 automatically deducted from your checking account each month.

3. Make One Extra Payment Each Year

Pick one month each year and pay the mortgage twice. Translation: Send the bank one extra payment a year.

Try doing this with some of your tax refund, suggests Bach. But no matter when you choose to do it, don’t simply send the bank a check for double the normal mortgage amount.

According to Bach this will confuse the bank. He advises writing two checks. Send one in with your mortgage coupon and the other with a letter explaining that you want the money applied to your principal.

The big takeaway according to Bach is that if you don’t buy a home, you won’t get on the escalator to wealth that home ownership provides. He says this message is particularly important for millennials who have been shying away from home ownership.

“The critical point is that one — you can buy a home. Two — you should buy a home. And three — you will be glad that you did,” says Bach.

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How One Man Paid Off His $255K Mortgage in 3 Years

paid off his mortgage

Most people aspire to buy a house by age 30, let alone pay off the mortgage. But a Canadian man named Sean Cooper managed to do both of those things in only three years.

In 2012, Cooper, who is 30, purchased a home for CA$425,000 or about $313,000 in Toronto. He took out a mortgage for CA$255,000 or $188,000, CBC reports, with a plan to get out of that debt as soon as possible.

He knew the burden that debt could put on a family because when he was younger, his single mom lost her job and nearly lost her family’s home. “I didn’t want to be in that situation,” Cooper told CBC, because “I saw how tough it was on her.”

To become debt-free, Cooper began working 100-hour weeks. He holds a full-time job as a pension analyst and also makes money on the side as a freelance writer. Plus, he worked part time earning CA$13 an hour (that’s $9.60 in U.S. dollars) in the meat department of a grocery store despite being vegetarian.

Cooper found other ways to curtail his debt as well. He leveraged his three-bedroom home by living in the basement while renting out the rest of the space and made great strides to cut down his costs. He biked to work, never ate out and, like most Americans, rarely took any vacations. “Sadly, my most exciting trip to date was a 24-hour bus ride to rural Wisconsin,” Cooper told CBC. All told, Cooper was earning about CA$100,000 a year ($74,000 U.S. if you’re counting).

Now that he’s paid off the mortgage, Cooper has cut back his workweek and plans to get out more. He even held a ceremonial “mortgage burning” party to celebrate paying off the loan. He hasn’t totally bucked his frugal lifestyle, though: Cooper still works two jobs, lives in the basement and rents out the space upstairs.

Following Cooper’s lead takes serious discipline and can be difficult with a family involved. But you can still make progress by drafting a plan and sticking to your budget. Along the way, you’ll want to keep tabs on your credit score. You can get two free credit scores every month on Credit.com to help you track your progress.

More on Mortgages & Homebuying:

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