This meme about interest rates has been circulating around social media, at least among my real estate contacts.
Don’t believe everything you see on the internet. Let’s do some analysis and see if there’s any truth to this meme.
It suggests that paying a 7% interest rate at $30k under list price is better than $100k over list price at a 2.99% interest rate.
Let’s take a look at 4 different price points to see how true this is.
Let’s disregard the down payment for this analysis. With a 20% down payment, the price at which the meme becomes false gets a little higher.
EXAMPLE 1: $200k list price (meme is TRUE)
Scenario 1: $30k under ($170k) at 7% is $1,131/mo.
Scenario 2: $100k over ($300k) at 2.99% is $1,263/mo.
EXAMPLE 2: $300k list price (meme is FALSE)
Scenario 1: $30k under ($270k) at 7% is $1,796/mo.
Scenario 2: $100k over ($400k) at 2.99% is $1,684/mo.
EXAMPLE 3: $500k list price (meme is FALSE)
Scenario 1: $30k under ($470k) at 7% is $3,127/mo.
Scenario 2: $100k over ($600k) at 2.99% is $2,526/mo.
EXAMPLE 4: $700k list price (meme is FALSE)
Scenario 1: $30k under ($670k) at 7% is $4,458/mo.
Scenario 2: $100k over ($800k) at 2.99% is $3,369/mo.
As you can see, this internet meme holds truth at lower price points, but is completely false as you borrow more money. Once you get to the $300k price point, the meme already doesn’t work.
If you have any questions about real estate, I am a licensed realtor serving Northern Virginia. Feel free to reach out at realtordannylee@gmail.com or (401) 261-0044.