What Happens When Mortgage Interest Reaches 10%?

  • 4 min read

So what will it mean if and when mortgage rates hit 10%? Well first of all before we get to that and how to calculate your payment, 

Looking at the rate from the early 1970s, the rate is at 10%. So rates were 8-10% for a good part of 30-some-odd years until we get into the early 2000s. So roughly 30 years. Now they go below 8%. So for the last let’s say 50 years half the time rates were at or about 10% and half the time it wasn’t. Keep in mind that this period of time here from the early eighties until the mid to late nineties was a period of time of high inflation and unemployment. Does that sound familiar? Those are times like we’re facing now. So this is the reason why the rates may go up near double digits. Right now they’re roughly at 7%. The fed just approved another three basis points or 0.75% interest rate, an increase that will bump the rates up even a little higher. So what’s that going to do for payments? 

It’ll be very easy to calculate mortgage payments once rates go up that high let’s take a look. And here’s your mortgage calculator. If you put in a loan amount of $390,000, it gives you a monthly payment of $3,400. So roughly once you’re at 10%, you can calculate your payment by just taking the amount of your financing and chopping off two zeros. Right? So from 390,000 to 3,400, it’s a little bit less than that but by the time you figure in taxes and insurance, you’re going to be more than that anyway. So, you know roughly 1% of your amount is what you end up having for a mortgage payment, which makes sense because a 10% mortgage over the course of a year over 12 months averages out to be that amount. So it will be very easy to calculate your payment. So that way you’re looking at a $500,000 house your payment will be 5,000. If you’re looking at a $650,000 house your payment would be 6,500 and so on. I can remember back in the eighties instantly being able to figure out mortgage payments by just chopping off two zeros off the amount you’re financing. So a $260,000 house would be 2,600. This is going to help really guide the economics of purchasing a home and comparing it to rent by putting the payment in perspective of what it does compare to rent because it landlord or a property owner needs to get a certain return on their investment. And that return is going to be also figured in a percentage. So if you have a $500,000 house how much do you need to make to have that viable investment? Once you pay your interest your taxes insurance maintenance upkeep, and vacancy rate, right? 

So a 10% mortgage rate. is going to have an effect on both the price and also rental rates. And it may be the opposite of what you think. Sometimes people think that a higher interest rate will reduce home values. Well, keep in mind in the seventies and eighties, when interest rates went up sometimes 15-16,  housing prices didn’t go down, there wasn’t really a housing crash until the late eighties and it was a small blip. It popped right back up in the nineties. So mortgage rates may not have the same effect on supply and demand that you might think for other commodities only because people need to live in a house. Other things you can use as discretionary purchases were real estate. You need a roof over your head. Everybody needs one and you have to pay something to get it.

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