The Homa Files

A simple analysis … and interesting historical perspective.

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These days — with conventional  mortgage rates running about 4% — a $1,000 monthly Principle & Interest (P&I) payment gets you a 30-year loan of about $210,000.

Assuming a 10% downpayment, that’s a $235,000 home.

IMPORTANT: That doesn’t take into account real estate taxes (usually between 1% and 1.5% of a homes value) … or insurance (a grand or two annually) … that are usually added to your monthly payment and held by the lender in an escrow account.

Here’s a chart that gives you a quick way to estimate the mortgage amount over a range of interest rates … assuming a $1,000 per month P&I payment.

Just take the interest rate that you can get (on the horizontal axis), draw a vertical line, and ricochet it off the blue line to estimate the corresponding mortgage amount.

Of course, as interest rates go up, the corresponding mortgage amount goes down.

If you’ve got a budget bigger than $1,000 per month, just divide your budget by 1,000 and multiply times the mortgage amount corresponding to the $1,000 payment charted above.

For example, if your monthly P&I budget is $2,000, just double the mortgage amount on the chart …. $210,000 (@4%) times 2 gets a $420,000 mortgage … which gets a $465,000 house, assuming a 10% down payment.

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The 30-year trend in “how much house?” is pretty interesting …

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In the Carter-era 1980s — when interest rates were over 10% — a $1,000 monthly P&I payment only supported a $75,000 mortgage.

As interest rates have come down, the ‘how much house?’ amount has almost triples.

Source

With mortgage rates at 4% — and the Fed promising to keep nudging interest rates higher —  there’s not much chance of the trend continuing upward much longer …

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This entry was posted on February 24, 2013 at 8:36 pm and is filed under Housing - Mortgages. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.