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hmiamid OP t1_irfso80 wrote

Data source is only maths. Compound interest formula. Tool used is LibreOffice Calc.

This data shows what house price you can afford for a given interest rate supposing you pay 1000/month for 30 years on the mortgage.

So the idea here is, people on average when they start a mortgage, always pay a given amount per month to their mortgage (usually a third of their income f.ex.). And this is the same whether the interest rate is low or high.

For the demand to meet the offer (1000/month example), the price of houses fall. I wouldn't generally say that drastically like in this graph but this is the trend.

From 1% to 7%, the price is practically halved.

Edit: 7% instead of 6%.

Edit: a few pointed out that 1000/month isn't really how much most people pay. It is an arbitrary unit. If you are considering 2000/month, just double the y axis. Relation between house price and monthly payment is proportional.

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gh0stwriter88 t1_irg797d wrote

Even so it is one of the best and most educational things I've seen on this sub in awhile.

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rainpizza t1_irgihes wrote

What's the formula behind this graph?

Asking because I am curious to see if I can tweak it for my situation.

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hmiamid OP t1_irgj20r wrote

Sure. Formula is (1-q^-N )/(q^(1/12)-1) where q is 1+r, r is the interest rate and N is the mortgage term in years. Make sure to put r without a percentage. So f.ex. for 5%, r = 0.05 and therefore q = 1.05. The 1/12 is because we pay every month.

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[deleted] t1_irghd9u wrote

[deleted]

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highline9 t1_irip7fy wrote

Why downvoted? Also, for the three folks I just asked, me included, this doesn’t hold true. A $250K house at 3% is no where near $1k a month…more like 1650

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zehhet t1_iriq6pr wrote

Is that your total payment each month, including payment to taxes/insurance into the escrow account? This is only talking about the cost of the debt, not the total cost of ownership, which is always more.

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highline9 t1_iritrso wrote

No, just straight mortgage…I initially thought of that (total payment…taxes, HOA, pmi, escrow) but remembered to just think about straight mortgage when trying to make the chart work for me…total payment is almost 2500 (very high HOA, live on the water/gulf, HIGH insurance)…quite honestly, if there was a person to have it not work/be normal, that’d be me, lol.

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