Even if Prices Fall, Interest Rate Rise May Cost Buyers More
The California Association of Realtors (C.A.R.) just came out with a chart that substantiates my advice to buyers and sellers in recent posts – the next four or five months are a window of opportunity for buyers to lock in low interest rates while benefitting from affordable prices. These favorable circumstances for buyers mean more demand for sellers — a strong reason to consider selling sooner, rather than later.
As an example of how changes in rates and prices could affect your monthly payment, C.A.R. gave a hypothetical with a $300,000 purchase price. The chart is useful even though this figure is unrealistically low for most properties in Oakland and the Berkeley to El Cerrito area.
At $300,000, with 20% down and a five per cent interest rate, the monthly PITI (principal, interest, taxes, insurance) would be $1630. Adding half a per cent to the loan increases it to $1710; a one per cent rate boost makes the payment $1780. If the purchase price comes down to $285,000 (a five per cent decrease), with a six per cent loan rate, the payment is still $1690, $60 higher than when the mortgage was at five per cent.
The chart shows monthly payments in different scenarios.
Obviously, when we double or triple the purchase price, all these figures become commensurately higher, making it even more difficult for buyers to handle. So, once again I say – if you are thinking of buying or selling, do so soon because things are likely to get worse.
For more, read previous posts, “Some Things Bear Repeating” and “Take Advantage of Low Interest Rates Now.”