Mortage Rates and Price Reductions

Posted by Emily Ray-Porter on Monday, March 3rd, 2008 at 2:45pm.

A couple of weeks ago, in early February, the fixed mortgage rate jumped a full half-percent, making it the fastest rate increase in 20 years.

The table below demonstrates how even as home prices may drop, monthly mortgage payments basically stay the same; due to increased interest rates:

Scenario 1:
Prices decrease by 5% and interest rates increase by 0.5%

Scenario 2:
Prices decrease by 10% and interest rates increase by 1.0%

Today

Scenario 1

Scenario 2

Home Price

$218, 900

Home Price: -5%

$207,955

Home Price: -10%

$197,010

Interest Rates

6.04%

Interest Rates: +0.5%

6.54%

Interest Rates: +1.0%

7.04%

Monthly Payment

$1,054

Monthly Payment

$1,056

Monthly Payment

$1,053

Table: Kadlec, Dan. "Ignore the Headlines!" Time 25 February 2008