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Neutral for buyers? Absolutely not. As a buyer you rather want to take out a loan in a high interest rate environment than a low interest rate environment, giv

Neutral for buyers? Absolutely not. As a buyer you rather want to take out a loan in a high interest rate environment than a low interest rate environment, given that the monthly payment is the same. 1000 usd extra paid towards your mortgage actually makes a difference when the rate is 15% compared to when it is 1.5%

EPWN3D 17d ago
There's also "date the rate, marry the price". If you're a buyer and think that rates are going to come down within a couple of years, you can lock in the lower price of your home for property tax purposes and then refinance when rates are lower. But a lot of people bought in 2024 expecting that to happen.
iamflimflam1 17d ago
This really doesn’t make sense. Higher interest rates mean the monthly payment is higher. You need to pay back the principal + the interest.
- bluGill 17d ago
  He assumed that the payment is the same meaning the principal for the same house went down and so this is neutral. If your payment is the same it doesn't matter what is principal vs interest. In the best cases rates go down in the future and then you refinance and your payment goes way down. House prices tend to be "sticky", so that assumption is probably wrong. People who own a house often cannot afford to sell for the current value since it won't pay off their loan and leave enough money left over for a replacement house so they avoid moving. Eventually things get bad enough that they "sell short", but that takes a credit hit so you don't want to do that until the loss is large (and in turn you gain more).
  - iamflimflam1 17d ago
    Maybe the mortgage system is different in the US. But if you have a 25 year term on a loan for a $500,000 Approx numbers: 5%: $2922 monthly, total paid: $876,885 10%: $4543 monthly, total paid: $1,353,000.
    - tossandthrow 17d ago
      Yes, so the 500k is not fixed - that should be obvious from these calculations.
      - iamflimflam1 17d ago
        [dead]
    - bluGill 17d ago
      You didn't do the same math. Given a $1500 monthly payment and a 30 year loan (30 year is most common in the US), at 5% loan is $279,400; at 10% the loan is for 170,900.
      - maattdd 17d ago
        How is 10% less than 5% ?
iamnothere 17d ago
Only if you expect rates to come down in the future. If the monthly payment is the same, I guess you have a slightly bigger mortgage interest deduction for tax purposes, but you’re still paying the same amount each month. If you expect rates to come down soon, you can plan to refinance in the future, but that’s a gamble. Rates may not go down, or the value of the house could go down before you refinance, which may make refinancing more expensive depending on how much you owe.
- tossandthrow 17d ago
  No? Paying down a high interest mortgage will always have bigger impact on the dollar than paying down a low interest mortgage.
  - iamnothere 17d ago
    If you’re paying the same amount monthly, your cash flow is the same. Are we not comparing apples to apples here? I mean a traditional fixed mortgage. I’m comparing a mortgage with a high rate and lower principal to one with a lower rate and high principal, where the minimum monthly payments are the same and the owner pays the minimum. A high interest mortgage just means that you pay more total interest over the life of the mortgage. In any case traditional mortgages are front-loaded, so you pay more towards interest up front than you do principal.
    - tossandthrow 17d ago
      I said that the monthly payment is the same. Not that you pay the same amount towards your loan. An optional extra payment is worth more when interest rates are higher. Ie. An optional extra payment of 1000$ will pay your 150$ a year in saved interest when the rate is 15% and only 15$ when the rate is 1.5%. Everything else being equal, optional payments has a higher value, which represent value to the buyer.
      - iamnothere 17d ago
        This is true, but I was not assuming extra payments and I don’t know where you got that assumption from. Many people can’t afford to make extra payments given the already high cost of housing and the rising cost of everything else.
bluGill 17d ago
The question is what will rates do in the future. If rates go down you refinance, if they go up even more you hold your rates. Either way so you are fine long term, but it can be 10 years before it pays off. Note that the US mostly does fixed rate for life of the loan. Many countries only have ARM (adjustable rates), and those exist in the US as well. If you have an ARM that changes things greatly.

EPWN3D 17d ago

There's also "date the rate, marry the price". If you're a buyer and think that rates are going to come down within a couple of years, you can lock in the lower price of your home for property tax purposes and then refinance when rates are lower. But a lot of people bought in 2024 expecting that to happen.

iamflimflam1 17d ago

This really doesn’t make sense. Higher interest rates mean the monthly payment is higher. You need to pay back the principal + the interest.

bluGill 17d ago
He assumed that the payment is the same meaning the principal for the same house went down and so this is neutral. If your payment is the same it doesn't matter what is principal vs interest. In the best cases rates go down in the future and then you refinance and your payment goes way down. House prices tend to be "sticky", so that assumption is probably wrong. People who own a house often cannot afford to sell for the current value since it won't pay off their loan and leave enough money left over for a replacement house so they avoid moving. Eventually things get bad enough that they "sell short", but that takes a credit hit so you don't want to do that until the loss is large (and in turn you gain more).
- iamflimflam1 17d ago
  Maybe the mortgage system is different in the US. But if you have a 25 year term on a loan for a $500,000 Approx numbers: 5%: $2922 monthly, total paid: $876,885 10%: $4543 monthly, total paid: $1,353,000.
  - tossandthrow 17d ago
    Yes, so the 500k is not fixed - that should be obvious from these calculations.
    - iamflimflam1 17d ago
      [dead]
  - bluGill 17d ago
    You didn't do the same math. Given a $1500 monthly payment and a 30 year loan (30 year is most common in the US), at 5% loan is $279,400; at 10% the loan is for 170,900.
    - maattdd 17d ago
      How is 10% less than 5% ?

iamnothere 17d ago

Only if you expect rates to come down in the future. If the monthly payment is the same, I guess you have a slightly bigger mortgage interest deduction for tax purposes, but you’re still paying the same amount each month. If you expect rates to come down soon, you can plan to refinance in the future, but that’s a gamble. Rates may not go down, or the value of the house could go down before you refinance, which may make refinancing more expensive depending on how much you owe.

tossandthrow 17d ago
No? Paying down a high interest mortgage will always have bigger impact on the dollar than paying down a low interest mortgage.
- iamnothere 17d ago
  If you’re paying the same amount monthly, your cash flow is the same. Are we not comparing apples to apples here? I mean a traditional fixed mortgage. I’m comparing a mortgage with a high rate and lower principal to one with a lower rate and high principal, where the minimum monthly payments are the same and the owner pays the minimum. A high interest mortgage just means that you pay more total interest over the life of the mortgage. In any case traditional mortgages are front-loaded, so you pay more towards interest up front than you do principal.
  - tossandthrow 17d ago
    I said that the monthly payment is the same. Not that you pay the same amount towards your loan. An optional extra payment is worth more when interest rates are higher. Ie. An optional extra payment of 1000$ will pay your 150$ a year in saved interest when the rate is 15% and only 15$ when the rate is 1.5%. Everything else being equal, optional payments has a higher value, which represent value to the buyer.
    - iamnothere 17d ago
      This is true, but I was not assuming extra payments and I don’t know where you got that assumption from. Many people can’t afford to make extra payments given the already high cost of housing and the rising cost of everything else.

bluGill 17d ago

The question is what will rates do in the future. If rates go down you refinance, if they go up even more you hold your rates. Either way so you are fine long term, but it can be 10 years before it pays off. Note that the US mostly does fixed rate for life of the loan. Many countries only have ARM (adjustable rates), and those exist in the US as well. If you have an ARM that changes things greatly.