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08-18-2009, 03:25 AM #1
Renter
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- Aug 2009
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Discussion about real interest rate mortgages
I would like to discuss about the introduction of real interest rate mortgages in markets. First of all, because they can prevent new real estate crisis. Second, because all scholars talk about the long term correlation between market prices and real demand, real interest rates and household income.
See the following example:
Situation A - Real interest rates for mortgages are at 3%
Inflation and household income (50.000 $) rise at 0%.
A borrower would get a 30-year ARM at 3% for 276.721$
Situation B - Real interest rates for mortgages are at 3%
Inflation and household income (50.000$) rise at 3%.
A borrower would get a 30-year ARM at 6% for 194.590$
Since real estate markets are driven by borrowers, prices will have to fall almost 30% (from 276.721$ to 194.590$) if sellers want to find demand.
Real household income during the next 30 years in situation A: 988.289$
Real household income during the next 30 years in situation B: 986.769$
(As you can notice, it is almost the same)
Loan amount of an Adjustable real rate mortgage in A: 276.721$
Loan amount of an Adjustable real rate mortgage in B: 276.295$
Wouldn't make more sense to have real rate mortgages in markets?Last edited by realratemortgages; 08-18-2009 at 03:29 AM.
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