Low Mortgage Rates vs. Low Home Prices - Which is better? - Faranesh Real Estate and Property Management

Low Mortgage Rates vs. Low Home Prices – Which is better?

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Wasim Faranesh

Owner of Faranesh Real Estate and Property Management

Low Mortgage Rates vs. Low Home Prices: Which Is Better?

How to analyze the numbers.

Let’s take a look at the impact of both home prices and mortgage rates on your decision to buy real estate and the relationship they share. Both are important, not only in terms of whether you should buy but also in regards to how much of a home you can afford. So should you buy a property now while interest rates are near historic lows or should you wait it out and let prices pull back first while hoping interest rates stay low. Well, first things first, it’s nearly impossible to time the market. Predicting the direction of anything whether it’s a home, stock or cryptocurrency can be a tall order, and anyone knowledgeable in these markets will tell you this.

Let’s take a look at a scenario where mortgage rates rise and home prices fall to see which situation is more favorable to the home buyer.

Scenario #1: A more expensive home

  • Sales Price $400,000 on a 30-year fixed-rate mortgage
  • Loan Amount: $320,000 20% down on that is $80,000.
  • Mortgage rate is 4%. Mortgage Payment: $1,527.73 a month.
  • Total paid including interest just under $550,000.

Now, imagine home prices fall 10% over the next year or two while mortgage rates rise from 4% to 5.5%.

Scenario #2, a higher mortgage rate

  • Sales Price: $360,000 on a 30-year fixed-rate mortgage
  • Loan Amount: $288,000 20% down is $72,000
  • Mortgage rate at 5.5%
  • Payment would be $1,635.97
  • Total paid including interest just under $589,000.

Is A Lower Interest Rate Better?

As you can see, buying the home at the higher price point with a lower mortgage rate results in both a cheaper monthly mortgage payment and significantly less interest paid over the loan term. Qualifying also would be easier with regard to the debt-to-income ratio requirements mortgage lenders impose. Although the down payment is $8,000 higher on the more expensive house, we’re still looking at an overall savings of nearly $40,000 with a larger yet lower rate mortgage.

Hopefully this video illustrates the importance of low mortgage rates. Thanks for watching. For more information on the real estate market, make sure to hit the subscribe button.

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