hmiamid OP t1_iribryz wrote

The point is how fast the curve drops from low mortgage rates to high ones. This in turn drives the house prices down because of lower purchasing power. And that's for everyone. It won't be half though because every buyer is not a new buyer. Remortgaging is in some countries (like the UK) a necessity too as they are mostly 5 yr fixed then go to SVR. Of course if you lock a 30yr low rate, you don't care about all this. But it's not the case of everyone and some countries will be more affected than others.


hmiamid OP t1_iria0vi wrote

If you go and apply for a mortgage on a new house, they look at your current income. Maybe you'll be able to pay more later but it's not the point here. If rates rise from 1% to 7%, and you got the OK from the broker for a 311k mortgage a few months ago, now you can only be accepted for an 150k ish one.


hmiamid OP t1_irgksfl wrote

In terms of abstract maths, it's called a limit towards infinity. We can never realistically create an infinite interest rate, but if we do, we pay 1000/month to own nothing after 30 years (or any amount of time for that matter). The principal is simply 0. I mean the original question I think was more of a mathematical curiosity than anything realistic.


hmiamid OP t1_irfso80 wrote

Data source is only maths. Compound interest formula. Tool used is LibreOffice Calc.

This data shows what house price you can afford for a given interest rate supposing you pay 1000/month for 30 years on the mortgage.

So the idea here is, people on average when they start a mortgage, always pay a given amount per month to their mortgage (usually a third of their income f.ex.). And this is the same whether the interest rate is low or high.

For the demand to meet the offer (1000/month example), the price of houses fall. I wouldn't generally say that drastically like in this graph but this is the trend.

From 1% to 7%, the price is practically halved.

Edit: 7% instead of 6%.

Edit: a few pointed out that 1000/month isn't really how much most people pay. It is an arbitrary unit. If you are considering 2000/month, just double the y axis. Relation between house price and monthly payment is proportional.