If you are in the market to purchase your first home or considering moving up, 2009 may be a great year for you!
In the past there has always been an inverse correlation between interest rates and the price of homes.
If we were to look at 1990 as an example, house prices dropped, but as fast as the price dropped the interest rate increased even faster. The rates in 1990 topped out at around 14%. As a result, the cost of carrying a home in many cases went up not down.
Let’s look at 20 years ago: 1990 versus 1989:
1989 Mortgage of $250,000 @ a rate of 10% = Payments of $2,236.22
1990 Mortgage of $225,000 @ a rate of 14% = Payments of $2,641.22
As a result a savings of $25,000 in price was offset by an increase in payment of $400. So $400 x 60 months or five year payments = $24,000.00
Now we look at 2009 versus 2008:
Mortgage in 2008 250,000 @ a rate of 5.75% =Payments of $1,562.00
Mortgage in 2009 235,000 @ a rate of 4.49% =Payment of $1,300.00
Now $15,000.00 in savings plus $262 x 60 months or five years payments ($15,720.00) results in total savings of $30,720.00!
This is a big difference!!!!!
You can carry a mortgage for $460,000 for the same payments as the $250,000 mortgage in 1990. I would conclude that you surely get a better bang for your buck today.
Kimme Myles is a Sales Representative with Royal LePage R.E.S./Johnston & Daniel Division. Kimme is a regular contributor to the Muddy York Blog. Kimme’s email address is kimmemyles@royallepage.ca and website is located at www.kimmemyles.com
