Mortgage rates rise and home prices rise not even sure what the difference is between the two. How does this affect my chances of buying my new home? I don’t really get Real Estate jargon and I’m terrified of getting scammed.

Question

Mortgage rates rise and home prices rise not even sure what the difference is between the two. How does this affect my chances of buying my new home? I don’t really get Real Estate jargon and I’m terrified of getting scammed.

In: 20

Answer 1

Home prices are like the pricetag for a house. You’re buying a house for $200,000.

Mortgage rates are how much you pay the bank to loan you the money for your house. For example, let’s say you want to buy that $200,000 house, but only have $20,000 available to spend; you’re gong to need to borrow $180,000 (do note: we’re neglecting some other costs that go into the purchase of a house, like closing costs and buying points on the mortgage and PMI, for sake of simplicity. If you’re working with a good real estate agent or Realtor, they can essentially tell you “the house will cost $x, plus $y to close,” so the house cost will be $[x+y]). So you borrow the $180,000 on a 30-year fixed mortgage (you pay back the loan in 360 monthly installments, and the interest rate does not change). You get a 30-year fixed mortgage with a 7.5% APR (Annual Percent Return), which means that you pay $1259 a month, and wind up paying $453,091 over the lifetime of the loan ($273,091 in interest, and the $180,000 principal). If you find a loan with a lower interest rate, say, 6% APR, you pay less overall (in our example case, your monthly payment would be $1079, and your lifetime interest would be $208,509, so that 1.5% drop saves you $65,000 over the lifetime of the loan, or just under $200 a month in payments).

So home price: pricetag. Mortgage rate: interest rate on the loan to buy the house. Both affect your ability to buy a house.

Best way to save money on a loan: start with as small of a loan as possible, with as low an interest rate as possible. Also, one tip from my Realtor when we bought our house: if you’re paid biweekly, take your monthly mortgage payment, divide by 2, and pay that out of every paycheck; you get an extra payment in every year, and you chip away at the interest faster, since you’re paying faster.