Sustaining McMansion purchases with low interest rates

If architecutural critiques of McMansions do not dissuade potential buyers, enticing interest rates might prove persuasive. One Southern California mortgage broker explains:

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Maybe you, too, can afford a Southern California McMansion. How about paying just interest, not principal, at a rock bottom 1.875% mortgage rate for the first three years?

For a $1.5 million loan on a $2 million home, your house payment is locked down at $2,344. Assuming monthly property taxes of $2,083 (1.25% annual property tax rate) and $250 for monthly homeowners’ insurance, your total house payment is $4,677…

If rate and payment uncertainty gives you too much heartburn, you can find longer interest-only lock terms of five, seven or 10 years in the 2% to 3% interest rate range on 30-year mortgages.

Even 30-year jumbo fixed rates are super cheap. I’ve found rates as low as 2.375% for Inland Empire properties, where jumbos start at $548,250. In Los Angeles and Orange counties, where jumbos start at $822,375, rates are as low as 2.625%.

Why buy a McMansion? Because it is relatively cheap due to low interest rates. As the commentary notes, renting a McMansion could be significantly more costly than buying. Since Americans like large houses and this is an expensive real estate market, a large McMansion at reasonable rates may look like a good deal.

At the same time, the idea of even cheaper interest rates for just three years should cause some pause. What happens if interest rates go up? This sort of approach sounds like some of the mortgage options of the 2000s that helped lead to difficulties for some in keeping up with their mortgage.

Another way that McMansions could continue to be an attractive financial option in the future is if their relative value drops compares to other homes. If fewer people want such a home, this might depress values to a point where others who value space or like other McMansion features might be able to get a bargain.

One thought on “Sustaining McMansion purchases with low interest rates

  1. I’m waiting for it to change completely and McMansions become a dumping ground for POOR PEOPLE and the term to become a dog whistle like “inner city” was when I was growing up. (I do not _want_ that, but fear / kindof expect it.)

    Like

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