Forum Replies Created
-
AuthorPosts
-
(former)FormerSanDiegan
Participant[quote=Doooh]Your examples were based on years of change. The reality of the current example we’re in was based on 1 month. Let me repeat it again… 1 month and the 30 year saw a 1% increase!
The examples you presented are irrelevant to the reality we’re sitting in this month.[/quote]
OK. Then we should see a 10% decline in one month.
Participant[quote=doofrat]
If you go from 4% to 8%, that’s 100%, so your payment effectively doubles.
At least that’s what I figured out, if I’m wrong, feel free to flame me.[/quote]Not exactly…
There is a non-linear relationship between interest rate and payment. Although the interest portion would double, the monthly payment does not.
30-year loan:
400K @ 4% -> 1909.56 P&I
400K @ 5% -> 2147.29
400K @ 8% -> 2935.06 P&IIn this case, a 25% increase in rate yields a 12% increase in payment and a 100% increase in interest rate corresponds to a 53.7% increase in monthly payment.
Participant[quote=doofrat]
If you go from 4% to 8%, that’s 100%, so your payment effectively doubles.
At least that’s what I figured out, if I’m wrong, feel free to flame me.[/quote]Not exactly…
There is a non-linear relationship between interest rate and payment. Although the interest portion would double, the monthly payment does not.
30-year loan:
400K @ 4% -> 1909.56 P&I
400K @ 5% -> 2147.29
400K @ 8% -> 2935.06 P&IIn this case, a 25% increase in rate yields a 12% increase in payment and a 100% increase in interest rate corresponds to a 53.7% increase in monthly payment.
Participant[quote=doofrat]
If you go from 4% to 8%, that’s 100%, so your payment effectively doubles.
At least that’s what I figured out, if I’m wrong, feel free to flame me.[/quote]Not exactly…
There is a non-linear relationship between interest rate and payment. Although the interest portion would double, the monthly payment does not.
30-year loan:
400K @ 4% -> 1909.56 P&I
400K @ 5% -> 2147.29
400K @ 8% -> 2935.06 P&IIn this case, a 25% increase in rate yields a 12% increase in payment and a 100% increase in interest rate corresponds to a 53.7% increase in monthly payment.
Participant[quote=doofrat]
If you go from 4% to 8%, that’s 100%, so your payment effectively doubles.
At least that’s what I figured out, if I’m wrong, feel free to flame me.[/quote]Not exactly…
There is a non-linear relationship between interest rate and payment. Although the interest portion would double, the monthly payment does not.
30-year loan:
400K @ 4% -> 1909.56 P&I
400K @ 5% -> 2147.29
400K @ 8% -> 2935.06 P&IIn this case, a 25% increase in rate yields a 12% increase in payment and a 100% increase in interest rate corresponds to a 53.7% increase in monthly payment.
Participant[quote=doofrat]
If you go from 4% to 8%, that’s 100%, so your payment effectively doubles.
At least that’s what I figured out, if I’m wrong, feel free to flame me.[/quote]Not exactly…
There is a non-linear relationship between interest rate and payment. Although the interest portion would double, the monthly payment does not.
30-year loan:
400K @ 4% -> 1909.56 P&I
400K @ 5% -> 2147.29
400K @ 8% -> 2935.06 P&IIn this case, a 25% increase in rate yields a 12% increase in payment and a 100% increase in interest rate corresponds to a 53.7% increase in monthly payment.
Participantjpinpb –
Your hard work, diligence and perseverence have paid off. Congratulations. I believe that you have done well for yourself and your husband. You might believe you have caught a knife, but IMHO you at least caught it by the handle after a small bounce off the floor. Best Wishes on the new digs.
As for detoxing from following real estate… I don’t think it’s possible. I am still trying to stop watching after catching REO fever in the mid-1990’s. Whether it’s the phenomenon of being unable to stop looking at the trainwreck of the past half-decade or the excitement of scoring a future investment property, I believe that once we are hooked, we are hooked.
Participantjpinpb –
Your hard work, diligence and perseverence have paid off. Congratulations. I believe that you have done well for yourself and your husband. You might believe you have caught a knife, but IMHO you at least caught it by the handle after a small bounce off the floor. Best Wishes on the new digs.
As for detoxing from following real estate… I don’t think it’s possible. I am still trying to stop watching after catching REO fever in the mid-1990’s. Whether it’s the phenomenon of being unable to stop looking at the trainwreck of the past half-decade or the excitement of scoring a future investment property, I believe that once we are hooked, we are hooked.
Participantjpinpb –
Your hard work, diligence and perseverence have paid off. Congratulations. I believe that you have done well for yourself and your husband. You might believe you have caught a knife, but IMHO you at least caught it by the handle after a small bounce off the floor. Best Wishes on the new digs.
As for detoxing from following real estate… I don’t think it’s possible. I am still trying to stop watching after catching REO fever in the mid-1990’s. Whether it’s the phenomenon of being unable to stop looking at the trainwreck of the past half-decade or the excitement of scoring a future investment property, I believe that once we are hooked, we are hooked.
Participantjpinpb –
Your hard work, diligence and perseverence have paid off. Congratulations. I believe that you have done well for yourself and your husband. You might believe you have caught a knife, but IMHO you at least caught it by the handle after a small bounce off the floor. Best Wishes on the new digs.
As for detoxing from following real estate… I don’t think it’s possible. I am still trying to stop watching after catching REO fever in the mid-1990’s. Whether it’s the phenomenon of being unable to stop looking at the trainwreck of the past half-decade or the excitement of scoring a future investment property, I believe that once we are hooked, we are hooked.
Participantjpinpb –
Your hard work, diligence and perseverence have paid off. Congratulations. I believe that you have done well for yourself and your husband. You might believe you have caught a knife, but IMHO you at least caught it by the handle after a small bounce off the floor. Best Wishes on the new digs.
As for detoxing from following real estate… I don’t think it’s possible. I am still trying to stop watching after catching REO fever in the mid-1990’s. Whether it’s the phenomenon of being unable to stop looking at the trainwreck of the past half-decade or the excitement of scoring a future investment property, I believe that once we are hooked, we are hooked.
ParticipantIf rates changed instantaneously by 1% and no other factors in the economy changed, then the price would be inversely related to rate.
However, rate changes never happen in a vaccum. Rates respond to underlying economics, so changes in home prices rarely respond as you suggest.
Example #1: From 2006 to 2010, 30-yr mortgage rates declined from around 6.5% to less than 5%.
Did prices increase by 10%+ during that period ? Hell No. Prices declined at the steepest rates since the depression.Example #2: In late 2002 30-yr mortgage interest rates were at 6%. BY mid 2006 they were 6.5%.
Were home prices flat during that period ? No. They were quite bubblicious.Example #3: From 1990 to 1995 rates dropped from 10% + to about 7.5%. Did prices rise during this period ? Not really.
This period included the worst decline (until superceded by the 2006-2009 decline) in home prices in post-war California.Example #4: In 1972, 30-yr mortgage rates were about 7.4%. By 1989, rates were above 10%. What did home prices do doing this period ?
Hint: they did not decline.The simple point is that it’s not that simple. Rates do not change in a vacuum. As a thought experiment prices are inversely proportional to rates, but in reality, it is not neccessarily so.
ParticipantIf rates changed instantaneously by 1% and no other factors in the economy changed, then the price would be inversely related to rate.
However, rate changes never happen in a vaccum. Rates respond to underlying economics, so changes in home prices rarely respond as you suggest.
Example #1: From 2006 to 2010, 30-yr mortgage rates declined from around 6.5% to less than 5%.
Did prices increase by 10%+ during that period ? Hell No. Prices declined at the steepest rates since the depression.Example #2: In late 2002 30-yr mortgage interest rates were at 6%. BY mid 2006 they were 6.5%.
Were home prices flat during that period ? No. They were quite bubblicious.Example #3: From 1990 to 1995 rates dropped from 10% + to about 7.5%. Did prices rise during this period ? Not really.
This period included the worst decline (until superceded by the 2006-2009 decline) in home prices in post-war California.Example #4: In 1972, 30-yr mortgage rates were about 7.4%. By 1989, rates were above 10%. What did home prices do doing this period ?
Hint: they did not decline.The simple point is that it’s not that simple. Rates do not change in a vacuum. As a thought experiment prices are inversely proportional to rates, but in reality, it is not neccessarily so.
ParticipantIf rates changed instantaneously by 1% and no other factors in the economy changed, then the price would be inversely related to rate.
However, rate changes never happen in a vaccum. Rates respond to underlying economics, so changes in home prices rarely respond as you suggest.
Example #1: From 2006 to 2010, 30-yr mortgage rates declined from around 6.5% to less than 5%.
Did prices increase by 10%+ during that period ? Hell No. Prices declined at the steepest rates since the depression.Example #2: In late 2002 30-yr mortgage interest rates were at 6%. BY mid 2006 they were 6.5%.
Were home prices flat during that period ? No. They were quite bubblicious.Example #3: From 1990 to 1995 rates dropped from 10% + to about 7.5%. Did prices rise during this period ? Not really.
This period included the worst decline (until superceded by the 2006-2009 decline) in home prices in post-war California.Example #4: In 1972, 30-yr mortgage rates were about 7.4%. By 1989, rates were above 10%. What did home prices do doing this period ?
Hint: they did not decline.The simple point is that it’s not that simple. Rates do not change in a vacuum. As a thought experiment prices are inversely proportional to rates, but in reality, it is not neccessarily so.
-
AuthorPosts
