I was talking with some friends the other day, when one of them mentioned that historically, market drops come hand-in-hand with interest rate hikes. The first thing that came to mind was, “What effect would this have on monthly payments.”

As soon as I got back to the office, I opened up Excel and went to work. Now, I’m no mathematician, but this is pretty simple math. Here’s what I found:

A $200,000 loan at 5.5% requires a monthly payment of $1,135 for 30 years. Suppose home values drop 5% in the next year (not impossible, but it has never happened in Canon City), and interest rates rise by 1% during the same period (more likely than a 5% drop in home value). Then the same house would require a $190,000 loan at 6.5%, and the monthly payment rises to $1,201 for 30 years.

The increase of $66 per month probably won’t break the bank, but it could increase a potential buyer’s debt ratio enough to disqualify some buyers that could afford to buy the $200,000 home today.

If you’re a buyer, this is another reason why IT’S A PERFECT TIME TO BUY A HOME. Interest is low and there are a lot of homes to choose from. If you’re a seller, don’t wait to lower your price, get your home in the market today and get it sold before interest rates rise again.