You’ve been hearing a lot of talk from me lately with one common theme: buy now and don’t wait for interest rates to drop. It seems like everyone is waiting for better interest rates. But it’s important to understand that you are going to be paying a bunch more for the house.
Taking a Look at the Numbers
Today, I want to quantify what those numbers look like. I used a $700,000 purchase with 20% down, and 6.75% interest rate right now vs. a hypothetical 5% interest rate. For what it’s worth, I’m not hearing a lot of predictions too far south of 5%.
So, you would have a $560,000 loan now plus the breakdown of principle, interest, taxes, and everything. The 2nd scenario looks at a hypothetical 1 year out when rates are 5%, assuming a 5% increase in property values. This number is based on a lot of different resources and predictions.
The analysis shows that the different in payments is $440 per month, which works out to be $5,300 over a year. If you have the opportunity to refinance, that costs you around $5,000. Combined, it’s a total cost of around $10,270 for a buy now scenario for an annual estimate.
Wait & Pay A Lot More Overall
In comparison, you could potentially be paying an extra $35,000 because of the increase in housing prices in a year – which is $25,000 more than a buy-now scenario. Even though rates drop, your total out-of-pocket costs are much higher if you wait.
I know I have been talking about “buy now” a lot lately. This breakdown quantifies why you would choose to buy now instead of waiting. It’s important to look at the bigger picture. Yes, you would have a higher payment now as well as the cost of a refinance down the road. But it still puts you significantly further ahead assuming the anticipated rate drop and property values increase as expected in the coming year.
Want Personalized Recommendations?
This video shows the real numbers. If you want more information about your personal situation and potential options, then reach out to me to discuss the possibilities for your mortgage. I’m always here to help!