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.
Edit: Loool, how hard is it to understand buying a 200k house with a 12y loan is better than buying the same one at 400k paying a loan during 25 years. It’s not as you’d one day cash out the 200k or 400k.
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.
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.
I’m talking about housing economics, not like what’s the current loan cost. The current market is what it is today, buy what you have the financial possibility to buy.
But if rates go up wildly, I’m gonna repeat this once again, then housing prices will go Down.
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.
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.
People cannot suddenly borrow more, not in the US. That is just not how it works here. The amount you can borrow is decided by income and credit score. Interest rates do not affect the loan durations you have available, you can always decide to get 10, 15, or 30 year fixed. Yes, 10 and 15 have higher monthly payments, but if your income fits, you can always get them, regardless of interest rate.
If suddenly it’s at 12% then you can borrow less (or you live in some place where mathematics does not apply), and conversely if it drops from 12 to 2 you can borrow more.
Maybe not YOU, but you as in the general population. You have just never experienced it, as you have to go back to maybe the 1980s to find those expensive loans.
All countries have laws and rules based on income and whatnot, the usa is not exceptional.
As you say, loans with interest rates that high no longer exist. But you are still incorrect with how mortgages work in the US. You absolutely cannot suddenly borrow more with lower interest rates. Once again, the amount you can borrow is based off of credit scores and income, NOT interest rates. Sure, maybe you could borrow like $25k more, maybe even $50k. But that is nothing compared to your full loan, and no bank is going to see that interest rates are low and be willing to suddenly take on more risk with little gain. What would the bank’s motivation be? They gain nothing but risk by doing that, so they don’t do it. They do allow for more risk when interest rates are high, because they make more money off of loans. It’s the exact opposite of what you are trying to claim.
The US is exceptional here, maybe not in a good way, however, we definitely are. I don’t understand why you are trying to tell me that my lived experience is wrong and that your vague and incorrect assumptions about the US mortgage market are correct.
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.
You are making sweeping claims about the US mortgage system without ever having had participated in it. You have not been correct about how any of it works here.
Lol no I did not say that, to the contrary, I said there are a set number of houses (it does change but not very fast, not like other commodities like tomatoes or oil). And everyone needs one (1). That’s why when people can borrow loads of cheap money, prices go up.
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.
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.
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.
As someone who did exactly what we’re talking about here, prices were not “very high” when I got my low interest loan. They’re higher now than when I purchased 6 years ago, that’s for sure. I don’t know what else to say about that, or how to say it differently, as I’ve stated this several times now.
Lower interest rates do not enable longer loans, at least not in the US. You can always get 10, 15, and 30 year fixed loans. They also don’t enable you to borrow more, not here. The amount you can borrow is based on your income and credit score, current interest rates are generally not a factor.
At 12% interest and 30 year fixed with 20% down, a $400,000 home would cost the buyer $1,184,961.71 out of pocket. That’s $3,291.56/mo. The total interest paid is $864,961.71. Adjusting that to 15 year fixed but everything else being the same, you pay $691,296.80 out of pocket and $371,296.80 is interest. Don’t forget the down payments in your calculation, of course.
At 6.576% (the current interest rate), that same 30 year fixed loan comes to $733,909.74 out of pocket, with $413,909.74 being interest. That’s $451,051 less than the 12% (this is basic math). That’s how much you save.
This does not include insurance or taxes, this is just pure mortgage.
++rate is only better if you already have a lower rate because it generally means appreciation of the property asking price, and depreciation of your payment and the amount you still owe, all have accelerated.
This is because loan rates rise and fall with the prime rate, which is mostly tied to inflation rate, AKA the rate of currency depreciation.
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.
Edit: Loool, how hard is it to understand buying a 200k house with a 12y loan is better than buying the same one at 400k paying a loan during 25 years. It’s not as you’d one day cash out the 200k or 400k.
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.
That’s why I ran it with today’s numbers as well. You talk in hypotheticals that just don’t reflect the behaviour of the current market.
I’m talking about housing economics, not like what’s the current loan cost. The current market is what it is today, buy what you have the financial possibility to buy.
But if rates go up wildly, I’m gonna repeat this once again, then housing prices will go Down.
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.
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!
People cannot suddenly borrow more, not in the US. That is just not how it works here. The amount you can borrow is decided by income and credit score. Interest rates do not affect the loan durations you have available, you can always decide to get 10, 15, or 30 year fixed. Yes, 10 and 15 have higher monthly payments, but if your income fits, you can always get them, regardless of interest rate.
Of course they can.
If suddenly it’s at 12% then you can borrow less (or you live in some place where mathematics does not apply), and conversely if it drops from 12 to 2 you can borrow more.
Maybe not YOU, but you as in the general population. You have just never experienced it, as you have to go back to maybe the 1980s to find those expensive loans.
All countries have laws and rules based on income and whatnot, the usa is not exceptional.
As you say, loans with interest rates that high no longer exist. But you are still incorrect with how mortgages work in the US. You absolutely cannot suddenly borrow more with lower interest rates. Once again, the amount you can borrow is based off of credit scores and income, NOT interest rates. Sure, maybe you could borrow like $25k more, maybe even $50k. But that is nothing compared to your full loan, and no bank is going to see that interest rates are low and be willing to suddenly take on more risk with little gain. What would the bank’s motivation be? They gain nothing but risk by doing that, so they don’t do it. They do allow for more risk when interest rates are high, because they make more money off of loans. It’s the exact opposite of what you are trying to claim.
The US is exceptional here, maybe not in a good way, however, we definitely are. I don’t understand why you are trying to tell me that my lived experience is wrong and that your vague and incorrect assumptions about the US mortgage market are correct.
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!
You are making sweeping claims about the US mortgage system without ever having had participated in it. You have not been correct about how any of it works here.
You are also espousing that there should be fewer home owners in a country that is already strained with wealth inequality.
I’ve just been waiting for you to say something actually useful.
Lol no I did not say that, to the contrary, I said there are a set number of houses (it does change but not very fast, not like other commodities like tomatoes or oil). And everyone needs one (1). That’s why when people can borrow loads of cheap money, prices go up.
That’s so hard to grasp?
Fascinating.
There aren’t a set number of houses, though. We can build them according to need. Many projects in my area.
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.
As someone who did exactly what we’re talking about here, prices were not “very high” when I got my low interest loan. They’re higher now than when I purchased 6 years ago, that’s for sure. I don’t know what else to say about that, or how to say it differently, as I’ve stated this several times now.
Lower interest rates do not enable longer loans, at least not in the US. You can always get 10, 15, and 30 year fixed loans. They also don’t enable you to borrow more, not here. The amount you can borrow is based on your income and credit score, current interest rates are generally not a factor.
Okay, so take your pocket calculator and simulate a 30 year loan at 12%.
Won’t happen.
Check out how it was like not last year but 20 years ago (maybe more).
At 12% interest and 30 year fixed with 20% down, a $400,000 home would cost the buyer $1,184,961.71 out of pocket. That’s $3,291.56/mo. The total interest paid is $864,961.71. Adjusting that to 15 year fixed but everything else being the same, you pay $691,296.80 out of pocket and $371,296.80 is interest. Don’t forget the down payments in your calculation, of course.
At 6.576% (the current interest rate), that same 30 year fixed loan comes to $733,909.74 out of pocket, with $413,909.74 being interest. That’s $451,051 less than the 12% (this is basic math). That’s how much you save.
This does not include insurance or taxes, this is just pure mortgage.
++rate is only better if you already have a lower rate because it generally means appreciation of the property asking price, and depreciation of your payment and the amount you still owe, all have accelerated.
This is because loan rates rise and fall with the prime rate, which is mostly tied to inflation rate, AKA the rate of currency depreciation.