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Values Drop But Rates Up? – Payment Still Way Higher; Don’t Wait

We recently had a borrower repeat a refrain we heard often in years past: “I think the market is over-priced right now b/c there is too little inventory; I am going to wait for prices to drop even if it means I have to take a higher rate; higher rates may actually push prices even lower.”

This was our quick and oft-repeated refrain: You are better off with today’s prices and exceptionally low rates.

Here are examples: A $750,000 purchase today with 20% down and 3.75% rate will result in PITI of about $3,600 (rounded).

If that same house drops to $700,000 (highly unlikely we think) and rates are up to 6%, PITI will jump to $4,160 (rounded; assumes 20% down again).

Even if a buyer saves $50,000 in price, he will still be over $500 per month worse off in payment if rates drift back to even a historically low “6% range.”

The loan amount associated with the $700,000 purchase will be $40,000 lower, but the 1.5% higher rate pushes the payment over $500 higher.

Low interest rates are truly a gift.

Jay Voorhees
Founder/Broker | JVM Lending
(925) 855-4491 | DRE# 01524255, NMLS# 335646