As interest rates rise, you may notice house prices seem to be stabilizing or coming down. Generally speaking, for every 1% increase in interest rates, home prices fall by 10%.
Is this actually true?
Not exactly - but here is a conversation that can shed a bit of light on this interesting phenomenon.
Despite buying a “cheaper” home, a 1% increase in interest rates costs you much more than the 10% you’re saving on the price.
Look at these examples from The Truth About Mortgage:
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Scenario 1:
Sales price: $400,000
Loan amount: $320,000 (20% down payment = $80,000)
Mortgage rate: 3%
Mortgage payment: $1,349.13
Mortgage term: 30 yrs
Total interest paid: $165,686.80
Scenario 2:
Sales price: $360,000
Loan amount: $288,000 (20% down payment = $72,000)
Mortgage rate: 4%
Mortgage payment: $1,374.96
Mortgage term: 30 yrs
Total interest paid: $206,985.60
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Translation: Scenario 2 costs you $41,298.80 more!
That’s the bad news. And imagine the difference when the homes are selling for a million dollars or more.
The good news?
A creative broker can actually save you in long-term interest costs AND monthly payment.
For example, one of our strategies is having the seller contribute the “price reduction” as a seller credit to the buyer's lender to “buy” the rate down.
The result?
You save in long-term interest costs AND monthly payment. And the seller gets the same amount they would if they lowered the price 10%.
There are many ways to get a good deal done (even as interest rates soar).
Want to get the best deal possible?
Give us a call at 949-229-2208. We don’t charge anything for your initial consultation.
We’ll walk you through all your options and help you make the smartest financial decision possible.
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