Rates vs. prices:
the seesaw.
Why a lower interest rate does not always mean a lower monthly payment on the same home.
An Educational Example
When rates fall, prices tend to rise.
Many buyers are waiting for rates to drop before they buy. It makes sense on the surface. But when interest rates come down, more buyers come back into the market, and the price of the very same house often goes up, sometimes by hundreds of thousands of dollars.
Here is a simple illustration on one home, before and after rates fall. Principal and interest only, with 20% down.
| Today: higher rate | Later: lower rate | |
|---|---|---|
| Purchase price | $1,000,000 | $1,350,000 |
| Down payment (20%) | $200,000 | $270,000 |
| Loan amount | $800,000 | $1,080,000 |
| Interest rate | 7.0% | 5.5% |
| Monthly payment, 30-year fixed | $5,322 | $6,132 |
| Monthly payment, 15-year fixed | $7,191 | $8,825 |
In this example, the buyer who waited for a lower rate ends up with a higher monthly payment, a larger loan and more cash needed at closing. And if rates rise instead, waiting costs even more. For perspective, buyers in the early 1980s were paying rates of 11% to 16%.
The right time to buy is a personal decision. Monique can walk you through what today’s market looks like for the homes and neighborhoods you are considering.
Hypothetical example for educational purposes only. Payments shown are principal and interest only and exclude property taxes, insurance and HOA dues. Monique Flores is a real estate professional, not a mortgage lender. Speak with a licensed lender for rates and loan options.