The impact of low mortgage rates

High home prices are partly offset by low interest rates for home loans, but what's the arithmetic? Prudential Locations has kindly worked up a report on that. The company equates a full-percent change in mortgage rates to $50,000 worth of buying power. Even on a million-dollar home that's 5% of its value. For a $600,000 mortgage, at 6%, the monthly payment would be less than $2,900. At 6.5%, more than $3,000. Or look at it this way: A $3,000 a month mortgage payment buys $35,000 more home at 5.5% than at 6%. Prudential Locations correctly calls this an opportunity for some people to acquire a property that could be out of their reach later. But it's important to note that houses are taking longer to sell, and sellers who won't discount their home from peak prices are sometimes waiting months to sell their property and get the cash for their new purchase.

Comments

[Aaron Stene]

The price reduction phenomenon helped my brother immensely. Back in December 2007, my brother was able to buy a 4BR/2BA home in the HOVE for 225,000.

The house was originally on the market for 269,000. The spec contractor reduced the price to 249,000, and 235,000. But it remained unsold for 6 months until my brother's bid come in.

[russ]

Low intrest rates are good, but a low priced home is even better. Yet you are able to buy nore house as described in the article, you can do the same if you get a low priced home with a higher intrest rate. For example, if you buy a house for 800k in a hight market and get a rate of 5.5%, that's the same a buying the same house for 600k in a low market and paying 6.5%. BUT.. and this is huge, at 800k you will have to pay back 200k more in principal over the course of the loan than if you bought the same house for 600k in a lower market. YOU CAN ALWAYS REFINANCE later when rates are down again. You can never go back to the seller and ask for a 200k discount on a house he already sold you.