Even as the rest of America pulls back on mortgages, the wealthy are going on a borrowing binge.
New data from RealtyTrac show that wealthy buyers are ramping up their use of mortgages to buy homes. In July, 46 percent of people buying houses ranging from $2 million to $5 million used mortgages—up dramatically from 27 percent a year earlier. With purchases of $1 million to $2 million, the use of mortgages jumped to 63 percent from 49 percent.
The mortgage spree stands in stark contrast to the rest of the country, which has seen mortgage activity decline with rising rates. Nationwide, 40 percent of houses sold in July were bought with cash, up from 31 percent in July 2012, according to RealtyTrac.
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Housing economists and luxury real estate brokers say the mortgage economics for the wealthy are different than for everyone else. While rising rates make borrowing and buying less affordable for everyday homebuyers, looming rate hikes act as an incentive for affluent borrowers, who use loans as financial tools.
As rates start to rise, housing experts say, the wealthy who were waiting on the sidelines to buy or borrow decide to jump in. They are scooping up the cheap capital before it gets more expensive.
"With mortgage rates picking up, some of these folks decided to get off the fence and take advantage of the low rates," said Daren Blomquist of RealtyTrac. "With the wealthy it's more of a financial decision."