At the same time, it’d be hard to argue that mortgage rates nationwide aren’t super low and only expected to rise. That said, let’s look at a scenario where mortgage rates rise and home prices slump.
Sales price: $400,000
Loan amount: $320,000 (20% down = $80,000)
Mortgage rate: 4.50%
Mortgage payment: $1621.39
Total paid: $583,700.40
Now say home prices fall 10 percent over the next year or two, while mortgage rates rise from 4.50 percent to 6.00 percent, which isn’t necessarily unlikely.
Sales price: $360,000
Loan amount: $288,000 (20% down = $72,000)
Mortgage rate: 6.00%
Mortgage payment: $1726.71
Total paid: $621,615.60
So as we can see, buying the home at the current higher price with the lower mortgage rate results in both a lower monthly mortgage payment and significantly less interest paid throughout the loan. That could also make qualifying easier with regard to the debt-to-income ratio requirement. However, the down payment is $8,000 higher on the more expensive house, which could prove a barrier to homeownership if assets are low. But we’re still looking at savings of roughly $30,000 with the larger, yet lower-rate mortgage. Cool huh? Get off the fence if you wanna buy!