Let’s break this down. Plugging these numbers into a mortgage calculator, yes a $600,000 home with a 3% interest rate would be a payment of ~$2024/month. However, this assumes a 20% down payment, $0 property taxes, $0 insurance, $0 HOA etc.
However, an 850k house at an 8.5% interest rate with those same numbers would “only” be $5228/month. Additionally, as other commenters have pointed out, interest rates are not that high.
OP is straight up lying to you at worst, or just cherry picking numbers in a very deceiving way at best.
Not that I’m trying to argue housing is affordable. Just that people will go on the Internet and tell lies to spin a narrative and drive engagement.
In addition to the crackpipe interest rates OP is proporting, house prices peaked in the US in Q4 2022. House prices are actually currently lower on average than they were in '21.
Donald Trump wants the interest rates to go down, so wealthy people can have more free money.
I agree. But I do wish more people knew about USDA loans in the US, it was the only way I could initially buy my home because it means you can put any amount down, even 0% if you so desire. It allowed me to lock in a low rate (3.2%) in 2021.
The catch is that you must not be in an incorporated city or town, and income limits apply (based on your area’s COL).
The catch is that you must not be in an incorporated city or town, and income limits apply (based on your area’s COL).
That’s a pretty big catch. Or 2 catches, as it would seem to be.
It is viable for many, but it’s not a generally-applicable solution.
Sure, but more options are better, and there’s tons of non incorporated areas. I’m 45 minutes away from Seattle and in one, for example.
Here’s the eligibility map: https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?pageAction=sfp
There’s also FHA loans for those with not great credit, and VA loans for veterans. VA loans also allow 0% down
Only 850k? What’s the catch, is the house in North fucking Dakota?
Here in Australia, they just changed a lot of the tax laws. Every shonky house investor out there is freaking out telling everyone how important they are and we’ll fail without them lol
Those numbers are so not reality. $2K/month is nowhere near the payment for the first one.
It could be. The very key thing that is left out of both is the down payment amount
600k at 3%, you need 229k down (38%) to pay $2,025/mo (assuming extremely low property tax and insurance).
850k at 8.5%, you need 40k down (4.71%) to pay $6,850/mo (assuming extremely low property tax and insurance).
40k seems like a much more reasonable down payment…
The 600k house at 3% with 40k down would be $2,821/mo. Almost $4k/mo difference from the 850k example.
Almost $4k/mo difference from the 850k example.
So their point still stands
It’s $2028/mo. Think before you say these things, Mitch.
Yeah I had a 300k house at 3% was around 2k
You seem like someone who would be prepared if gravity reversed itself.
Not quite, I’m still working out where to keep my phone. Velcro chafes.
Point taken, but where are you in the world with an 8.5% mortgage? Rates in the US for 30 year mortgages are around 6.5% right now (source: https://fred.stlouisfed.org/series/MORTGAGE30US)
Nowhere but then the infographic would have been less shocking.
My math says that the monthly principal+interest on that house is more like $4,300 a month, assuming:
- Purchase price: $850,000
- Down payment (20%): $170,000
- Loan amount: $680,000
- Interest rate: 6.5% fixed
- Term: 30 years (360 months)
Not insignificant, but not wildly off like the infographic.
We don’t do 30 years here anymore. Its 25, and most people can’t do the 20% down, its 5% for first time homebuyer
Fun fact: the increase in monthly payment going from a 30-year down to a 20-year mortgage is less than 20-year to 15-year.
This is also why the talk about longer mortgages should be a non-starter.
You gotta roll home owners insurance in there, and taxes.
That’s realistic, but the infographic doesn’t include tax and insurance. Working backwards, it has:
- Home price: $600,000
- Down payment (20%): $120,000
- Loan amount: $480,000
- Interest rate: 3.0% fixed
- Term: 30 years (360 months)
The monthly principal-and-interest payment is exactly as the post said, $2024 / month.
Has insurance gone up? Absolutely? Have property taxes generally rise? They have. But this is an honest like-for-like comparison.
Who has 120k lying around for a down payment?
Someone selling a home they already own. I know thats not helpful to most, but thats the only realistic way to have 120k sitting around
$2024 > $4300 is more than double, while also assuming saving an extra $50,000 in downpayment while that cost increased.
Although the down payment has less impact. But nonetheless, that lower payment boosts the loan to about $4600.
Wages aren’t doubling.
Oh, I agree with you, and concur with the spirit of the infographic. I just like accurate calculations!
the baseline is around 6.5% but I don’t think most people get that, plus it was up around 7.5% six months ago
the numbers in the meme are definitely closer to what we’ve seen recently
When I bought my first house - doing so with decent income but pretty bad credit - I did so at 6.25%.
Everyone in the room recoiled at such an apparently high number.
Funnily it’s better the higher it is.
Someone complained wildly when we bought an appartement at 3.5%, they were ha ha that’s so easy I had to pay 12%!
But my price was much higher, as everyone now can borrow more, and it makes sense to take on a 20 year loan. With 12% you borrow less, and also it doesn’t make sense to borrow for more than like 12 years, so prices adjust. On top of that, if ever you lose your house (or it’s degraded) I personally prefer the base price being 150K instead of 450K…
So yeah it’s not just lower is better in the housing market.
What? You’re confused. Lower is always better. I bought my house when interest was 2.5%, pretty much the bottom of the interest rates during the start of covid. My house loan was around 450K. By the time I’ve paid off my loan (if I were to make the normal monthly payment) I’ll have given the bank over 750K dollars. Even at an amazing rate, some bank gets 2/3s the cost of my house in interest. At 12%, a 30 year, $450,000 loan would have you paying the bank 1.8M dollars, meaning some bank gets over 3x the cost of your house in interest. That’s insane. I get that you’re saying people will buy worse houses to not borrow as much money, but that’s not really a win. A family of 5 can’t fit in a one bedroom apartment.
See my comment above.
You would pay 12% for 8 years not 30, because high interest rates drive housing prices down.
Also no, people wouldn’t buy worse housing, it’s a closed market. If no one can pay 450K because it’d be insane and you couldn’t afford the monthly payments (you as a large swath of the population), the prices go down.
This is market economy with the twist that everyone needs housing, and the supply is quite fix.
That’s just not true. To buy my house right now on a 12% loan for 8 years, the monthly payment would be $10,000. If someone were to buy it right now on a 6% loan for 16 years (trying to match your numbers to the current state of the market), their monthly payment would be $5500. And they’d pay just a few thousand dollars less than I did in interest. Why? Because prices went up along with interest rates. For what you are saying to be true, prices would need to drop when interest rates go up, but that isn’t the case. Most people can’t afford to drop $10k a month on a loan just to save a few thousand long-term, let alone $5.5k. My monthly payment is less than half that.
If you take out a loan at 12% today well then you’re an imbecile.
If rates go up to 12%, then housing prices will go down because as you yourself just showed (!), it’s too expensive to buy at todays prices. So they will go down. If that happens.
Nothing spectacular in the housing market will happen just because you throw money out the window.
Lower is definitely always better in this case, there is no upside to paying more interest since you can typically get around the same range (give or take) no matter the term length.
See my comments above.
It doesn’t track. I didn’t buy out of my means when I purchased a home at a low rate. In fact, it allowed me to afford a better home for a cheaper price. You are not suddenly worse off at lower interest rates, infact, you owe the bank less. That doesn’t mean the duration of your loan changes. Referencing your example, you can still get the same term loan (12 yr is what you used, but in the US that would be an unusual duration), and the loan itself is cheaper.
Why would I give the bank extra money?
Okay let me explain. Of course you’d take the best loan when you can, but when interests are very low, the prices are very high. And vice versa.
I’m not talking about someone getting a slightly better loan for their purchase, I’m talking about the fact that if people can borrow more (low interests enables longer loans) then prices go up. Because people pay more for the same thing, because they can. And they do.
Nothing you said was correct or made sense…
Lower interest rates are better. You waste less money paying to bank to exist and profit from you.
No because now people can borrow more to buy a house/apartment, which drives prices up.
Imagine if it wasn’t 3 or 12% but 50%. You’d have to almost pay in cash, do you think an apartment would cost 400.000€? Some rare one yes but the most no.
Housing is a closed marker, everyone needs housing.
If you feel so strongly, I’m certain the big banks will take your donations. It will help others get loans.
Ha ha.
It’s sad you think you’re funny actually.
I mean I know they don’t teach economics in the usa (guess you’re from there) but man, it’s not that hard to understand. Less money=>cheaper housing, access to more money=>more expensive housing.
But you need to think 2cm farther than how it is for you yourself right now today. I have never said that you should change for an expensive bank loan, lol, but just how market dynamics work when loand are expensive.
Well well, good luck to you all!
This isn’t true at all. They don’t suddenly have more money to burn, and in fact, in the US, the amount you can borrow is based off of credit score, not the going interest rate.
I still don’t really understand what you’re trying to say to be honest. You owe the bank less at lower interest rates. Higher interest rates cause you to owe the bank more. You do not have to buy outside of your means if the interest rates are low, and in fact, the financially responsible thing to do is to buy well within your means while they’re low and lock in lower interest for the term of the loan.
I think what you’re trying to say is that when interest rates are low it becomes a seller’s market. While true, this is not permanent and you will save money in the long run if you buy with lower rates. I think you’re stuck on the short term and not thinking of the long term.
For example, rentals in my area have surpassed my mortgage payment by a good amount. If I didn’t buy when rates were low, this: 1, may have not been the case due to higher monthly payments, and 2, I might have gotten trapped in the rental cycle and never been able to own a home, ending up paying more than what I would have if I purchased a home while rates were low.
I’m neither talking about sellers markets or buy vs rent.
I’ll put it as short as I can: if people can borrow more, then prices will go up, because everyone needs a home, and there is a finite number of homes. You are basically fighting with everyone else who want to buy a home when you want to buy.
So if everyone can borrow more (low rates) then that doesn’t give you a better house, because everyone can now bid higher too.
And the reverse when it’s expensive to borrow of course.
You are talking about day to day economics, and yes I am sure you made a good choice stopping renting (economically).
But you seem to think, that in a market with very expensive loans, it’s worse somehow.
If it’s very expensive to borrow, the 450k house suddenly has no buyers and has to drop the price. Over time it becomes a 300k house (for example).
Are you better off with that? Yes. Not because you’ll pay your bank less, but you’ll pay them during a smaller time (at 12% it doesn’t help taking out a 25 year loan, it doesn’t make sense).
Also, as a bonus, usually when we already own, we go from less hood to better (better/bigger/more expensive) so if prices are low it’s cheaper to upgrade.
And on a final note, the “450k worth”, is not useful money, except if you sell it to live in a less good place (or if you have many houses) which people rarely do.
Hope it clears it up a bit!
For perspective the record high for mortgage interest rates in the US was 18.6% in October 1981. Wait… isn’t that when Boomers were buying houses and everything about life was easy and perfect? Yes.
Except the more important metric is number of years salary it takes to buy a home. Interest rate is mitigated by so many other factors.
Made from the finest in cardboard material that every builder has assured me has the same structural quality as brick.
any cardboard derivatives?
These days, you gotta have good credit to get a cardboard box…
/s, maybe 🤷
Is this Canadian or something? Average house prices peaked in the United States in Q4 2022. House prices are only marginally higher than they were in Q1 2021 rn and are lower than Q4 2021.
source?
Well, the banks can’t be loaning just anyone money for a home. They need that capital to be able to give loans to billionares, so they can fund their lifestyle and allow them to avoid paying any taxes.
Both are heavily overpriced.
Now do 2016
Your guys have fixed interest rate for housing ? Here their is only composed one. We used tu pay 50k of interest for a 20 year loan
I still wonder why US houses are so expensive? I mean they are basically just a couple plywood planks slapped together, what can be so expensive about that?
Supply and demand. The 2008 financial crises crushed perspective home home owners and rightfully made it harder to purchase homes for people with low credit. The demand for construction slowed/stopped driving many construction businesses out of business. Now we don’t have enough supply or enough construction to meet the supply. Somewhat ironically rents and prices are so high that it is economically viable to start building again. Many new apartments are being built now and for the first time in a very long time rents actually flatlined.
Beyond this there were also issues that made the problem even worse. Land lords started using the same tools to determine rent and even though they weren’t directly colluding, in effect they were through the tools. Also Blackstone started buying up as much property as it could during the low interest rates during covid.
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Well, when 5 people own all the houses and all the land they can jack up the price and leave the houses empty.
Gary’s Economics has as usual many great videos about this
It sucks because this ridiculous setup distorts everything about the economy and benefits no one except banks and the rich
and benefits no one except banks and the rich
Ah, so you mean a typical Tuesday on earth. :/
On the bright side, banks and the rich finally having their day in the sun!
Gee, I wonder how that came about.
