4 ms·

Not necessarily. If the price goes down, the amount of mortgage you need to get also goes down. It becomes easier to save for a downpayment. A bigger downpaymen

Not necessarily. If the price goes down, the amount of mortgage you need to get also goes down. It becomes easier to save for a downpayment. A bigger downpayment means saving on possible expensive mortgage insurance.

conductr 4y ago
Prices aren’t dropping that much to offset a tripling (or more) in interest expense. Or we have a long way to go at least.
- Finnucane 4y ago
  We were in a position to buy during the last crash, when there was a bit of a discount off the bubble. So in my experience, in the long run, paying less up front is better than paying more.
  - conductr 4y ago
    I’d agree but don’t think it’s the right comparison for this discussion. It’s more about how much prices have to come down from their recent highs to offset the recent uptick in interest expense. I bought my first home at end of the last recession (price at floor for my market) and maximized my leverage (little down) AND got low rates. So I did great and assuming you did the same it probably worked out the same for you. But the high rates now make the math a bit more complicated. And, I don’t know if I’d assume the same level of appreciation I did back then. At that time, the recession was a few years in and it felt like that bulls were awakening so I was very confident in my purchase. Right now, it’s early in the recession, we don’t even know how long/far prices will decline, and rates are pretty high and most assets feel inflated. So, I wouldn’t feel very confident about it right now. I’d actually recommend most people just do lowish down, hope for a refi opportunity in a couple years, but make sure you have some cash for repairs/maintenance/rainy days as well. In any case, how much does a home price have to come down to offset interest rates climbing? It’s a lot. Probably something like 20% (I can’t do the math rn)
    - harambae 4y ago
      > how much does a home price have to come down to offset interest rates climbing Generally speaking it's a rule of 10x in purchasing power (not price, clearly, because we haven't seen the corresponding price correction yet). So 1% increasing in mortgage rate should be 10% decreasing in purchasing power, just based on the math. And yes I believe there has been a 2% increase in average mortgage rate (3% -> 5%) so 20% sounds right.
TheHypnotist 4y ago
Just wait to see just how little principle you pay at the beginning. Interest rates make a huge difference.
vel0city 4y ago
I used to worry about needing to make sure I saved enough so I wouldn't have to pay any PMI. I really didn't like the idea of "throwing away" that money. My wife talked me into it and had me actually look at the real terms. We ended up putting ~10% down on a house. The PMI for that was ~$70/mo. We refinanced a year later and the home value increased that we were able to get rid of the PMI after only a year. I would have missed out on the lowest interest rates ever really seen and bought with house prices getting even higher over $840 in insurance on a several hundred thousand dollar purchase. I would suggest you don't assume you need to avoid PMI. For me, if I would have waited it would have cost me >$100k waiting to avoid "throwing away" $840. Obviously, every market is different, every buyer is different, the financial world is different now than a few years ago, your mileage may vary, I am not a lawyer, etc. Just saying, look at some actual terms before deciding.
- Finnucane 4y ago
  No, you don't need to avoid PMI. If you can, then it is better.
  - vel0city 4y ago
    > If you can, then it is better. That's the whole point of my comment, it isn't always better. I could have avoided any PMI by waiting a bit longer to amass more savings to have a larger down payment. But in doing so I would have avoided <$1,000 in PMI payments but increased the cost of the house by >$100k. It was definitely the better move to just pay the PMI in this case than to try and avoid it. I'd gladly pay $1,000 to make something >$100,000 cheaper in the end.
  - treis 4y ago
    Not necessarily. PMI removes risk for the lender so often that means a better rate. Also the bigger the loan the easier it is for them to make their fixed costs back. A lower down payment usually makes sense if you have the discipline to invest the difference and can tolerate some risk.
- lexh 4y ago
  I assume you would feel differently if the market had crashed and your purchase price was $100k less though… avoiding PMI while also having a lower principal. Hindsight.

conductr 4y ago

Prices aren’t dropping that much to offset a tripling (or more) in interest expense. Or we have a long way to go at least.

Finnucane 4y ago
We were in a position to buy during the last crash, when there was a bit of a discount off the bubble. So in my experience, in the long run, paying less up front is better than paying more.
- conductr 4y ago
  I’d agree but don’t think it’s the right comparison for this discussion. It’s more about how much prices have to come down from their recent highs to offset the recent uptick in interest expense. I bought my first home at end of the last recession (price at floor for my market) and maximized my leverage (little down) AND got low rates. So I did great and assuming you did the same it probably worked out the same for you. But the high rates now make the math a bit more complicated. And, I don’t know if I’d assume the same level of appreciation I did back then. At that time, the recession was a few years in and it felt like that bulls were awakening so I was very confident in my purchase. Right now, it’s early in the recession, we don’t even know how long/far prices will decline, and rates are pretty high and most assets feel inflated. So, I wouldn’t feel very confident about it right now. I’d actually recommend most people just do lowish down, hope for a refi opportunity in a couple years, but make sure you have some cash for repairs/maintenance/rainy days as well. In any case, how much does a home price have to come down to offset interest rates climbing? It’s a lot. Probably something like 20% (I can’t do the math rn)
  - harambae 4y ago
    > how much does a home price have to come down to offset interest rates climbing Generally speaking it's a rule of 10x in purchasing power (not price, clearly, because we haven't seen the corresponding price correction yet). So 1% increasing in mortgage rate should be 10% decreasing in purchasing power, just based on the math. And yes I believe there has been a 2% increase in average mortgage rate (3% -> 5%) so 20% sounds right.

TheHypnotist 4y ago

Just wait to see just how little principle you pay at the beginning. Interest rates make a huge difference.

vel0city 4y ago

I used to worry about needing to make sure I saved enough so I wouldn't have to pay any PMI. I really didn't like the idea of "throwing away" that money. My wife talked me into it and had me actually look at the real terms. We ended up putting ~10% down on a house. The PMI for that was ~$70/mo. We refinanced a year later and the home value increased that we were able to get rid of the PMI after only a year. I would have missed out on the lowest interest rates ever really seen and bought with house prices getting even higher over $840 in insurance on a several hundred thousand dollar purchase. I would suggest you don't assume you need to avoid PMI. For me, if I would have waited it would have cost me >$100k waiting to avoid "throwing away" $840. Obviously, every market is different, every buyer is different, the financial world is different now than a few years ago, your mileage may vary, I am not a lawyer, etc. Just saying, look at some actual terms before deciding.

Finnucane 4y ago
No, you don't need to avoid PMI. If you can, then it is better.
- vel0city 4y ago
  > If you can, then it is better. That's the whole point of my comment, it isn't always better. I could have avoided any PMI by waiting a bit longer to amass more savings to have a larger down payment. But in doing so I would have avoided <$1,000 in PMI payments but increased the cost of the house by >$100k. It was definitely the better move to just pay the PMI in this case than to try and avoid it. I'd gladly pay $1,000 to make something >$100,000 cheaper in the end.
- treis 4y ago
  Not necessarily. PMI removes risk for the lender so often that means a better rate. Also the bigger the loan the easier it is for them to make their fixed costs back. A lower down payment usually makes sense if you have the discipline to invest the difference and can tolerate some risk.
lexh 4y ago
I assume you would feel differently if the market had crashed and your purchase price was $100k less though… avoiding PMI while also having a lower principal. Hindsight.