The Interest Rate Versus The House Payment

Katie asks Dave if he has a special way of determining which of two things will cost her more.

QUESTION: Katie is completely debt free and can rent her house back from the business that bought it at a very favorable rate. She will clear about $28,000 to put as the down payment on her next house. Is there a formula to offset interest rates going up versus saving your house payment each month?

ANSWER: I don’t know that there’s an exact formula, because it’s pretty inexact to figure how much house prices and interest rates will go up in a year. If your house payment is less than a fourth of your take-home pay on a 15-year fixed rate mortgage, then I’ll go ahead and buy in what is one of the weakest real estate markets and best interest rate markets that we’ve had in 20 or 30 years. It’s a wonderful time to buy.