- Policies like risk-based mortgage pricing have led to Black homeowners paying more for mortgages, according to a new study from MIT.
- That extra amount, referred to in the study as a “Black tax,” also means less money available for retirement savings.
- “The policy response should not be to try to justify the differential, but to eliminate it,” the study’s authors write.
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Black homeowners pay around $13,000 more on their mortgages, making it harder to save for retirement, according to a new MIT study released in October.
The reason for this comes from a variety of factors, the study authors write, including higher interest rates, less opportunity to refinance, and higher property taxes. Factors including these can mean an additional $200-$600 a year for Black homeowners — and can add up to over $67,000 in lost retirement savings during the lifetime of a mortgage, according to the study.
A “quarter of the disparity in homeownership costs for Black homeowners is due to local property tax assessment,” according to the study, and Black homeowners pay around 13% more in taxes than their counterparts.
In highlighting solutions to remedy the imbalance, Ed Golding, an author of the study, told Bloomberg that “risk-based pricing in mortgage lending — overwhelmingly backed by government-sponsored housing-finance agencies — is a policy choice that can be changed if lawmakers want to help close the gap in Black-White homeownership.”
Even with FHA (Federal Housing Administration) loans, which aren’t risk-based, Black homeowners are still subject to higher total payments because they may not be able to pay at least 20% on a down payment toward a house, so insurance premiums may be higher. Historically, down payments are paid by relatives, and Black homeowners are less likely to have any relatives to help with the down payment, according to the study.
Lower appraisals and fewer opportunities to get mortgages also play a part in the disparities between Black homeowners and their counterparts.
“Over $50,000 of the wealth differential at retirement can be attributed just to the fact that Black homeowners pay more for homeownership due to higher mortgage rates and greater mortgage insurance costs,” the study concludes. “This amount does not account for the wealth differential due to higher residential property taxes paid by black homeowners. The policy response should not be to try to justify the differential, but to eliminate it.”
The authors of the study said they hope that by making this information available, those with the ability to change the way home loans are made available to potential Black homeowners do so — and quickly.
“While more research is always helpful, we know enough to make substantial improvements now.”
Read the entire MIT study here.