Defying most experts’ predictions, mortgage rates have fallen below 5%, and may drop to 4.5%, allowing borrowers to get more home for their money.

On the other hand, you could avoid the bigger-is-better syndrome and enjoy a lower payment on a home that’s all you really need. Which is smarter?

Lots of forces push Americans toward buying the most expensive home they can afford. Your real estate agent will get a bigger commission if you buy an expensive home. Many people believe a home is a good investment, so that a more expensive home is a more profitable one. And the more expensive home may be nicer to live in too.

At the start of the year, the average 30-year fixed-rate mortgage charged a bit more than 5.6%. If it falls to 4.5%, as some experts now predict, monthly payments on every $100,000 borrowed would fall from $616 to $507, according to the Mortgage Loan Calculator. On a $300,000 loan, that would save you $3,934 a year.

That 1.1 percentage point drop would allow a borrower with $100,000 in income to get a $457,000 loan, compared to $403,000 at the higher rate, the Maximum Mortgage Calculator shows.

If a lower rate makes buying a home possible, it’s something to celebrate. But what if you have your pick of affordable homes? Does it make financial sense to reach for the most expensive one you can get?

If home values were rising by 10%, 15% or 20% a year, it might make sense, in theory. But many buyers who followed that logic three or four years ago are now among the estimated 15 million underwater homeowners who owe more than their homes are worth.

Over long periods, home prices rise about 4% a year, about 1 percentage point above the average inflation rate. Stocks average closer to 10% a year, and they’re more “liquid,” meaning it’s easier to sell when you worry prices will fall or you see a more appealing alternative.

In the example above, the homeowner has a choice of saving nearly $4,000 a year from a lower mortgage rate. Invest that for 30 years at an 8% annual return and it will grow to $465,000. Invest it in a home appreciating at 4% a year and it will grow to $226,000.

In fact, that 4% return is an optimistic figure. It simply compares a home’s eventual sales price with its original purchase price. The cost of buying the home is two or three times higher when you include interest on the loan, real estate taxes and insurance.

In the past few years, many millions of Americans have been badly served by the assumption a home is a great investment. A prudent home buyer may see falling interest rates as an opportunity to reduce risk, by having less money tied up in the home rather than more.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at