Even if your home value falls, your monthly payment can go up!
First of all, overall house prices in Illinois have not yet fallen compared to the values at the same time last year. You can learn more by reading my last blog.
Nationwide, it seems that there are areas where house prices have fallen. However, the actual cost of buying a house is said to have increased. This is the effect of rising mortgage interest rates. In other words, unless you are buying a house with cash, you can see that your monthly expenses have increased.
On average, the amount of mortgage interest on a home of the same value increased by 77% in the US. Usually, you buy a house with a 30-year fixed interest rate. Based on that, let's run a simple simulation.
Illinois has not yet seen a drop in house prices, but let's make a calculation assuming a 10% decrease in house prices.
Terms of purchase
Home value - $400,000
Down payment - $80,000 (20%)
Tax - $9,000/y
Insurance - $1,000/y
Mortgage interest rate - 3.5% (for reference, interest rates in the 2% range were overflowing and overflowing last year)
Home Price - $360,000 (10% down)
Down payment - $80,000 (22.2%)
Tax - $9,000/y (not counting annual increase)
Insurance - $1,000/y
Mortgage interest rate - 6.5% (actually today, 11/7/2022 the interest rate is 7.84%, i.e. lower interest rate)
If you bought a $400K house in 2021, your monthly payment will be $2,270.28.
If you bought it in 2022, even if the house price is $360K, it will be $2,603.12.
That's at least an extra $230 a month, even if the value of your home drops by 10%. In addition, if you calculate the money that went out for rent in the past year from 2021 to 2022, the expenditure will be even greater.
However, the 2022 setting above is exaggerated, and more realistically, the house value is about 3% down to $388K, and the interest rate is 7.5%, so the monthly payment is $2,986.91. This means that you will have to pay about $720 more each month than you did last year.
And again, home prices in Illinois haven't fallen yet compared to last year. In other words, there is a high probability that you will pay higher than the monthly payment calculated above.
In real life, the monthly payment I have to pay is more important than the rise and fall of the house price. I hope you will be able to handle the house purchase more wisely by calculating the total price rather than just looking at the house price.
Thank you for reading, see you in the next post!