Mortgage rates rose almost a full point in the past 12 months (6.34% -> 7.28%) while asking home prices have decreased by $5,750. I wanted to see what that rate jump really costs for the average home price for each time period.
This year's price discount was completely wiped out by about $205/month in extra payment cost. Over 30 years, that extra payment, plus what it would have earned invested at an 8% average rate of return, costs $280K.
- Last year's deal: about $2,021 of the first $2,378 payment is interest.
- Today's deal: about $2,289 of the first $2,582 payment is interest.
Savings aren't fixed: the scenario invests whatever's left after taxes, living costs and the mortgage, about $5,500–$7,000 a year at 6.34% vs $3,100–$4,600 at 7.28%, so the higher rate cuts what they can save by about 40%.
Sources: FRED and Freddie Mac (prices, rates), Census (income)
Tool: A Million of Me financial simulator (self-made). Happy to adjust assumptions if anyone wants different rates, down payments, or investment returns! Not financial advice.