3 ms·

Can you explain how low rates make tying up equity in a home risky?

• Retric 10y ago
  People can only pay X mortgage. With rates at 5% that makes the max house they can afford ~20x, at 10% the max house ~= 10x. Thus increasing rates lowers housing prices. Inflation has a role here making everything complicated. But, you are generally better off to buy when rates are high and refinance or sell when rates are low.
  • toomuchtodo 10y ago
    And rates are at historic lows, with the Fed intending to keep moving them up, which means anyone who has been stretching to afford a home is going to be underwater shortly.
    • twelve40 10y ago
      Isn't a typical mortgage rate fixed? If I have a fixed rate that is withing my budget and I like the place, I can keep paying for decades, and the market ups and downs become purely virtual to me in the long run.
      • toomuchtodo 10y ago
        As long as you're not attempting to buy or sell, correct.
  • scharfstevenm 10y ago
    Yes, it's best to buy when rates are very high, then refinance when they fall. Our last refinance was at 2 5/8%. One big issue with Prop 13 is that people that would normally sell and move to a smaller place, or to another location, don't, because of the property tax consequences. Prop 90 partially addressed this, but most counties opted out because they did not want an influx of new residents paying artificially low property taxes.
• Spooky23 10y ago
  At 6%, $600 buys $100,000 of property. If rates went up to 11% (1990 rates), your borrowing power drops 60% or more. That's why we're maintaining these wacky rates. If rates floated via market forces, a significant part of the economy would just implode, particularly in California where people can walk away without penalty.