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Me_irl (lemmy.today)
submitted 5 months ago by to c/me_irl@lemmy.world
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[–] 4 points 5 months ago* (last edited 5 months ago) (7 children)

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?

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  • [–] -2 points 5 months ago (6 children)

    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.

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  • [–] 2 points 5 months ago* (5 children)

    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.

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  • [–] 0 points 5 months ago (4 children)

    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).

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  • [–] 2 points 5 months ago (3 children)

    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.

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  • [–] 0 points 5 months ago (2 children)

    Which proves my point.

    Housing will automatically become cheaper at 12% because people will have less money.

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  • [–] 2 points 5 months ago* (last edited 5 months ago) (1 child)

    It does the opposite of proving your point. Interest rates do not meaningfully decrease the cost of housing the US. If that were the case, my house should be cheaper for me to buy now, since interest rates are 3.3% HIGHER than when I bought, right?

    Yet, my house is almost $150k more expensive than when I bought it just 6 years ago. My mortgage would be much more expensive, not only because interest rates are higher, but also because the US treats housing as an investment, a bad practice yes, but it causes it to only meaningfully drop when the economy is terrible.

    Let's break it down for my home.

    With my 3.2% interest rate, I will pay $194,908.25 in interest on my loan by the time I pay it off. This is on top of my $350,000 loan, so $544,908.25 is what I will end up paying in total. I bought below market value at the time, and now my home is worth nearly $500,000 just 6 years later, which just about negates the interest if I were to sell now. If I bought the same home, now, with higher interest rates and property values, this comes to the following: $646,615.21 total interest paid(!) on a $500,000 loan @ 6.575% for a grand total of $1,146,615.21.

    In what way, exactly, would I save money here? It doesn't save money, even if I bought when it was $250,000 @ 6.575% (to pretend your scenario is accurate and that it reduces home prices). That would make me have to pay $323,307.60 in interest, substantially more just to end up in roughly the same spot. And no, housing prices here didn't drop by $100k when interest rates went up this year. They didn't even drop by $25,000. They dropped roughly $15,000. That's it. Peanuts.

    So you are still incorrect, and doubling down is only making you even more incorrect here. Show me exactly where the higher interest rates magically make the housing market cheaper, I'll wait, because according to you, I should sell my house and get a better deal right now. I'm all ears, and I've done what you said and brought out the calculator, and it's just not adding up to be a better deal at higher interest rates.

    You do realize how fucked housing is in the US, right?

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  • [–] 2 points 5 months ago

    You're better off not wasting your time. Big brain here doesn't understand numbers nor economics. They think that they can apply the most basic Wikipedia level principles to actual markets.

    I'm suddenly understanding why people on the internet keep referring to economics as witchcraft. Jokers like this.

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