Saw this in a news article: The monthly principal payments on a $1M note at 3% is equal to the monthly payments of a $500,000 note at 9%.
So a 6% jump in interest rate effectively halves your buying power. Of course people aren’t going to sell their houses if they don’t have to.
Edit: got my percentages 1 point off.
which is precisely what needs to happen to bring housing costs down.
3% mortgages vastly inflated home prices. the people who bought at the top of the market should be feeling the hurt just like they did in 2008.
2008 saw the unprecedented approval of loans, but also there were a LOT of adjustable or variable rate mortgages. So as rates increased sharply, people all of a sudden were deep under water. At least here they still have low rates. even if it is on a higher priced house, their payments won’t be getting worse.
But yes housing prices are out of control. People are starting to feel it, and it could very quickly go wrong for people. People even have crazy high loans on used cars. Going to be very interesting how it plays out.
i rent an affordable apartment and have a paid off car.
3/4 people i have met in the past 5 years thinks I’m crazy for not being leveraged up the wazoo like they are.
The monthly principal payments on a $1M note at 3% is equal to the monthly payments of a $500,000 note at 8%.
Running the numbers through an online mortgage calculator, I’m not seeing it quite that bad. Though, there are more variables than just the interest rate which need to be considered. I’m using the calculator at:
https://www.bankrate.com/mortgages/mortgage-calculator/
for those who want to follow along.
A $1,000,000 mortgage at 3% over 30 years, with no down payment has a Principal and Interest payment of $4,216
A $500,000 mortgage at 8% over 30 years with no down payment has a Principal and Interest payment of $3,668
So, not equal. If we assume a 20% down payment for each loan, leaving all other variables unchanged, we get $3,372 and $2,935 respectively. If we assume a constant $100,000 down payment (10% of the $1M mortgage and 20% of the $500k mortgage), the numbers are $3,794 and $2,935 respectively (there was no change for the $500k loan).
Overall, the claim seems to be incorrect. That said, if you look at the $500k loan, with a 20% down payment and drop the interest rate from 8% to 3%, the monthly payment drops from $2,935 to $1,686 and the total cost of the loan drops from $1,056,687 to $607,202, a rather significant drop.
