Interest Rate vs Asking Price

johnnyjb

Hi, im new to all this housing carry on and was just wondering a few things.
If what is being said in this forum is correct and houses drop in price but interest rates go up how does that effect your payments

Does it mean you need to borrow more to cover overall expected interest plus house price ? (bigger mortgage):(

Does it mean your mortgage payments will be higher by the month ? :mad:

what im trying to figure out is if i got a mortgage would i get caught with load of interest i didnt plan for Thanks

RentDayBlues

I think you need to do some serious research into what getting a mortgage means.

First of all - no bank will lend you extra money to cover your interest payments plus the house value. Note, its the house value not the price - the bank, if they give you a mortgage, will value the house and only lend you a proportion of this value, at most 92%

As for the question on the "loads of interest you didn't plan for" - this is how banks make money. I would suggest that you read into a lot of this, stress test the repayments you can afford now at a higher interest rate and take it from there

D3PO

what it means is that over the course of the mortgage you will pay more. Which broken down will mean your monthly repayments will be more.

So for example I have a 350k mortgage. Im paying 1200 per month if the ECB rate moved by 0.5% my mortgage would increase by nearly €100 per month.

I know somebody down the road who has a 275k mortgage but they are paying 1230 per month with the same term mortgage. Thats purely down to the fact that ive got a better interest rate (i have a tracker he doesnt) now his rate will probably go up even more with the margin increases happening right now.

so for all good it does him having bought the hosue for less. Hes essentially paying more for the house assuming neithe rof us change our repayments or terms

So interest rates make a BIG difference in terms of total cost of ownership.

Asking price is only 1 thing worth looking at for house buying but seems to be the only one peopple look at. Interest rates seem to be ignored which is crazy.

Interest rates wont be this low forever. I suggest you stress test what your replmyents would be like at 6% and see how affordable it is

ricman

SAY the interest rate is 2 per cent, your mortgage is 600, if interest rates go to 4 per cent your mortgage goes up to 1200 per month.
AT the moment interest rates are around 3.6per cent.
The house boom was caused by low interest rates, easy credit and bad regulation of banks.
Most people are on standard variable rate mortgages.
WE have a whole generation who grew up with low interest rates.
They probably dont think that interest rates could go up by 2 or 3 per cent.
IF you wanna be cautious buy a house in dublin round 180k,or wait another 2 years for prices to go down.
And work out if the interest rates go to 5 per cent could i still pay the mortgage without starving myself .

D3PO

ricman wrote: »

SAY the interest rate is 2 per cent, your mortgage is 600, if interest rates go to 4 per cent your mortgage goes up to 1200 per month.
.

WRONG If your going to give advise let it be correct. That would assume your interest only and not making capital repayments.

OP ignore this example. If your going to do a calculation use a mortgage repayment calculator.

johnnyjb

How do i work out the interest rate i will pay what is the interrest rate at now What factors do i use with a given house price to work out what a interest rise might cost me per month

I know banks make interest but i was asking cause im trying to reseach it

thats the whole point of the question

quozl

It's worth noting that you are likely to be better off buying a property when interest rates are HIGHER than they are now. This is counter-intuitive to most people.

The higher current interest rates are, the less banks will loan, and the lower house prices will be at the time. So to buy the same house you will have to borrow less money. While you will be able to borrow less, so will everybody else, you are still on the exact same competitive footing - something some people seem to miss.

Over the course of a 25 year loan, average interest rate paid will largely equalise with someone who bought for example 2 years previously at lower rates, and hence a larger payment price.

But the person who borrowed at the initially higher rates will have had to borrow a smaller some, and will thus save money over the course of the mortgage.

You can ignore trackers from now on, they're gone for good, or at least until the next crazy bubble if it ever comes.

So, the only argument for paying more for a property by buying at at a time of lower interest rates is if you're going to take a fixed rate mortgage, over a LONG time. Even then, it would need to be over a very long period fixed, with a big difference in rates.

D3PO

ricman wrote: »

The house boom was caused by low interest rates, .

absolute hogswash. Look at all the reposessions by companies like Start morgages. Subprime lenders charging 7% odd. People would have bought regardless it had nothing to do with low interest rates and everything to do with lax underwriting an a wreckless approach to providing credit.

quozl

johnnyjb wrote: »

How do i work out the interest rate i will pay

http://www.drcalculator.com/mortgage/

You can play around with initial amount borrowed, term (length) of mortgage, interest rates to see how it affects things.

Interest rate is related to the cost the bank borrows money at, and their own margin on top of it. You have no control over it, and if your property goes into negative equity you won't even be able to swap to a different bank who may have a better rate.


D3PO suggestion of stress-testing for 6% interest rates is reasonable. Personally I'd test for how you'd handle a year or two at slightly more if I were you.

D3PO

johnnyjb wrote: »

How do i work out the interest rate i will pay what is the interrest rate at now What factors do i use with a given house price to work out what a interest rise might cost me per month

I know banks make interest but i was asking cause im trying to reseach it

thats the whole point of the question

do a google search for mortgage calculator. put in the amount you want to borrow the term and make sure the interest rate your calculating on is between 6 - 7% this will give you a good basis to budget around and understand affordability for you

D3PO

quozl wrote: »

D3PO suggestion of stress-testing for 6% interest rates is reasonable. Personally I'd test for how you'd handle a year or two at slightly more if I were you.

I used 6% based on where rates are right now and how long it should take to get to or beyond 6%. In the interim I would expect the OP to have been able to put away some savings and perhaps even got an annual pay rise but fair point the higher you stress test at the bette rprepared you are.

OP not that it matters as the bank will make sure of it but Id suggest you dont plan to spend more that 35% of your net income on your mortgage

D3PO

quozl wrote: »

It's worth noting that you are likely to be better off buying a property when interest rates are HIGHER than they are now. This is counter-intuitive to most people.

The higher current interest rates are, the less banks will loan, and the lower house prices will be at the time. So to buy the same house you will have to borrow less money. While you will be able to borrow less, so will everybody else, you are still on the exact same competitive footing - something some people seem to miss.

.

I half buy into this but not fully. Banks will be stress testing and making mortgage offers now based on normalised interest rates rather than todays rates. That negates much of what you refer to.

However some of the logic plays through its. I think what ends up happening however is that certian areas of the city / country are effected and others are only impacted to the point that the closs of person living in a certina area may shift.

but fair point none the less

OMD

ricman wrote: »

SAY the interest rate is 2 per cent, your mortgage is 600, if interest rates go to 4 per cent your mortgage goes up to 1200 per month.

Wrong

ricman wrote: »

AT the moment interest rates are around 3.6per cent.
The house boom was caused by low interest rates, easy credit and bad regulation of banks.

Wrong

ricman wrote: »

Most people are on standard variable rate mortgages.

Wrong

ricman wrote: »

WE have a whole generation who grew up with low interest rates.
They probably dont think that interest rates could go up by 2 or 3 per cent.

Wrong.

Only 18 months ago mortgages were "2 or 3 per cent" higher. Vast majority of mortgage holders are well used to these rates.

ricman wrote: »

IF you wanna be cautious buy a house in dublin round 180k,or wait another 2 years for prices to go down.
And work out if the interest rates go to 5 per cent could i still pay the mortgage without starving myself .

Wrong.

Interest rates for someone taking out a mortgage now will be above 5% within 18 months. They need to stress test nearer 7%.

johnnyjb

D3PO wrote: »

OP not that it matters as the bank will make sure of it but Id suggest you dont plan to spend more that 35% of your net income on your mortgage

Whats 35% of 196.35 euro ??

Victor

johnnyjb wrote: »

If what is being said in this forum is correct and houses drop in price

Further increases in interest rates will tend to push house prices down as there is only so much that people can afford. Affordability at the moment is largely down to to economic changes, wages and the unemployment rate.

johnnyjb wrote: »

If what is being said in this forum is correct and houses drop in price but interest rates go up how does that effect your payments

If you have already bought when the rate changes, you will have to pay more. However, there are different mortgage products on offer. Some (fixed rate mortgages) will have the rate fixed, typically for 1-5 years. Others (tracker mortgages) will have the rate fixed to another interest rate, e.g. the ECB lending rate. The last major group is the variable rate mortgage, which is the traditional (but not necessarily best) Irish mortgage, where the bank sets their own rate (this is kept in check by them having to compete against other lenders, if the try to charge too much, people will move to other banks).

Does it mean you need to borrow more to cover overall expected interest plus house price ? (bigger mortgage):(

No, you might re-pay more, but you wouldn't borrow more, the difference being the amount of interest.

what im trying to figure out is if i got a mortgage would i get caught with load of interest i didnt plan for

If repayment stability is important for you, you might consider a fixed rate mortgage. It would cost slightly more, but would give you certainty as to how much you would repay over the next few years.

€250,000 mortgage over 30 years

1 years €804.10
2 years €924.05
3 years €1,054.01
4 years €1,193.54
5 years €1,342.05
6 years €1,498.88
7 years €1,663.26
8 years €1,834.41
9 years €2,011.56
10 years €2,193.93

ricman

Google mortgage interest calculator, roughly speaking 4 the first ten years most of your repayments consist of interest.
SAY you borrow 70k, your mortgage will be around 600 euros on interest variable of 3.5per cent.
Yeah ,you can get a fixed rate mortgage ,but they charge you a higher rate of interest.
SO i dont think its worth it 4 most people.
Most people are on standard variable rate mortgage of duration 25 years.

JuliusCaesar

johnnyjb wrote: »

Whats 35% of 196.35 euro ??

Are you using a computer to post this? Does your computer have a calculator?:rolleyes:

Or: pen and paper. (196.35 X 35)/100 Primary school stuff....

Or: roughly, just over a third.




(68.72 actually)

johnnyjb

JuliusCaesar wrote: »

Are you using a computer to post this? Does your computer have a calculator?:rolleyes:

Or: pen and paper. (196.35 X 35)/100 Primary school stuff....

Or: roughly, just over a third.




(68.72 actually)

Ah snap out of it "Julius Ceasar" :rolleyes: it was a joke. Thats how much the dole is :mad: