Quote:
Originally Posted by UFO
^ now that I re-read the post I'm not sure what he actually means.
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Quote:
Originally Posted by Mr.HappySilp
I read on the news somewhere that families have been putting more and more of their wages into mortgage and if the rates goes up a good 20 to 25% of families won't be able to afford it.
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I read this as if rates go up, a good 20 to 25% of families won't be able to afford it.
It's very easy to see this.
Amortization calculator
Say you borrow $300,000 at 4% interest. To keep it simple, we will ignore taxes and other cost involved with owning a place.
On a 5 year mortgage 25 year amortization mortgage, once a month payment, you would be looking at $1578 per month.
At 5%, you'd be paying $1745 per month.
At 6%, you'd be paying $1919 per month.
At 8%, you'd be paying $2290 per month.
If people were stretching themselves thin to afford the mortgage at 4%, how will they be able to come up with the extra $ when rates go up to 5% or higher.
This is why the government made the fuss about 40 year mortgages. That and low interest rates, people were able to afford beyond their means.