Video: Home Loan Rates vs Home Prices - The Bottom Line

Real Estate Agent with eReal Estate Corp

Here are the numbers from the example explained in this video:

Example #1 - Increase in interest rate, same home price:

Home Price: $500,000 Down Payment: 3.5% Amortization: 30 years</>

Interest Rate #1: 5.0%, fixed, 30 years Monthly PI Payment: $2,590.16
Interest Rate #2: 5.5%, fixed, 30 years Monthly PI Payment: $2,739.58

You pay $149.42 MORE per month when the interest rate goes up 0.5% - that's equivalent to just more than 2 McCafe Lattes each day!

Example #2 - Increase in interest rate, decrease in home price:

Home Value Depreciation: 3% Depreciated Home Price: $500,000 * 0.03 = $485,000

Interest Rate: 5.5%, fixed, 30 years Monthly PI Payment: $2,657.39

That's $67.23 MORE per month than if you were to buy the home at $500,000 with a 5.0% interest rate - which is equivalent to just under one mcDafe Latte each day!

Comments (5)

Ronald Borch
WJ Bradley Mortgage Capital Corp, S. Burlington, VT - South Burlington, VT
That is so true - so many people focus on price only, especially buyers with a short-term outlook, and rightfully so I suppose. But for those buyers planning to stay in their home for a long time, it's more about PAYMENT. Nice Vlog.
Jan 07, 2010 06:23 AM
Nevin Williams
Fairway Independent Mortgage Corporation - Cary, NC
Senior Mortgage Advisor

Nice V log Tiffany!  Great job explaining the correlation of rates vs cost of the home.

Jan 07, 2010 06:38 AM
Consumer Reader
Sorry, your argument does not work. Patient buyers have figured this out and are simply waiting for further price drops, until prices are in line with fundamentals of rent/mortgage and income/price. ...We are currently experiencing far more than 3% depreciation. In fact, a good negotiator should be able to get 3% off the purchase price even without further market depreciation. ...Sale price impacts everything that is percentage based in a settlement, RE agent commission, mortgage broker fees, transfer tax, etc. Purchasing at a lower price reduces settlement charges. Now you respond that the buyer does not pay RE commission. In truth, the buyer's loan may be the only money brought to settlement. They are borrowing (and paying interest on) the money that pays for everything. ...Sale price impacts property tax. Property tax on a $450K purchase is less than that of a $500K purchase. ...Interest rates always fluctuate. A house purchased at a lower price but higher interest rate can be refinanced when rates go down. This is HUGE. The easiest and most frequently utilized way to lower monthly payment is refi at a lower rate. Of course this is assuming an initial down payment, so there is equity to allow a refi, which brings me to my last argument. ...Save for a bigger down payment on that further depreciated price, pay reduced or maybe no PMI. Have a great day.
Jan 07, 2010 07:27 AM
Tiffany Wilson
eReal Estate Corp - Redondo Beach, CA
SFR, First Time Home Buyers & Investors
Ron - Yes, so many buyers focus on the price and forget the interest rate. Nevin- Thanks for the compliment! Consumer Reader - Thanks for your comment. Not sure what part of the country you are from, so maybe my argument isn't pertinent to your area. But, I can assure you that in my local market, my argument is very relevant. Add to that, that our inventory levels are less than half of what they were a year ago AND the sales rate is significantly higher than a year ago as well, then we see conditions that are suitable for producing a stable market and staunching depreciation. But, you did make some thought-provoking points.
Jan 07, 2010 07:51 AM
Consumer Reader

Thank you for your polite reply. I just looked up Redondo Beach on Redfin. It looks like a lovely area. Certainly more tony than anything I could afford.

I disagree with your assertion about staunching depreciation in Redondo Beach. I do not want to hijack your thread by posting the stats. You may wish to look at them when you have an opportunity, to see what the public is seeing. 

Perhaps you will interpret the data differently than I do. You make your living in this industry. I do not.

Jan 08, 2010 02:41 AM