With so much talk about when and where the real estate market will hit bottom it’s easy to forget that the home prices are only one part of determining how much buying a home will actually cost. We get caught up looking at the moving parts independently and often forget that, like airline seats, neighbors might be paying vastly different amounts for practically the same product.

Some of this is obvious and easy to digest—the folks who’ve owned their home for 20 years are likely to have a lower payment than those who just moved in, simply because prices were lower when they bought and they have had 20 years to pay down their principal. However, differences in mortgage rates can have a huge impact on what you pay. It’s important to consider what the actual stream of cash flows that you’ll be making each month will be and how the different moving parts—home price and mortgage rate—impact the actual payments made.

For the first week of February 2011, Zillow Mortgage Marketplace (ZMM) showed 30-year fixed rate mortgages were at 4.7%. For a prospective home buyer with good credit who is looking at a $200,000 property, able to put 20% down, and locking in a 4.7% rate on a 30-year fixed rate mortgage, her monthly payment will be $830. Let’s assume this same home buyer is in a market where home values are falling (as most of us still are right now) and she wants to wait for the market to “hit bottom” before buying. She believes that values may fall another 6% before bottoming (so she could get the same or similar home for $188,000 then versus $200,000 now). However, if in the meanwhile, 30-year fixed mortgage rates inch up to 5.2%, which is Freddie Mac’s forecasted average for 2011 (and still historically the third lowest annual average), her actual monthly payment goes to $826 with a 20% down payment. That $12,000 savings achieved by waiting to buy later at a lower price gets translated to just $4 a month less in a mortgage payment because much of the savings is offset by higher mortgage rates.

Now if mortgage rates go up to 5.7% (Freddie Mac’s forecast for the 30-year fixed rate in Q1 2012) in the time it takes to hit bottom with another 6% drop in values, her monthly mortgage payments will be $873, $43 more each month even though the she buys the house more cheaply. Over the thirty years of the loan, she’d pay over $25,000 more for a mortgage that was $10,000 smaller.

Maybe you’re not making your home buying decision and expecting to live there for 30 years or maybe you’re not looking at a $200,000 property, but it’s crucial to understand—in dollars and cents—how today’s historically low mortgage rates affect what you’re actually paying each month for your home.  To help visualize the trade-offs between financing and purchase costs, see the chart below. The chart is based on a 4.7% rate for a 30 year fixed rate mortgage, which is the rate ZMM quoted for much of February 2011. It shows the percentage by which your monthly mortgage payment will change as a result of movements in both home prices and mortgage rates. As you go down the chart, mortgage rates and monthly payments go up. The far left of the chart shows a 10% drop in prices and as you move right on the chart, home prices go up, as do monthly payments. The highest mortgage rate this chart displays is 6.0%, which was the mean rate (as reported by Freddie Mac) over the past 10 years.

Some of these percentages might look kind of small but they add up—an 8.4% increase in monthly payments is equivalent to making more than one full extra payment a year. Additionally, remember that mortgage rates are still near historical lows, so when we see widespread price appreciation, rates are likely to be higher, and the 1-2 punch of higher prices and higher rates will significantly affect what your monthly payments might be.

Photo: Joie de Cleve, Flickr