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It Doesn't Pay to Wait To Buy A Home

Written by on Wednesday, 01 April 2015 2:23 pm
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There will always be those who try to "time the market," but there's one factor you can't know -- when buying a home will become more expensive.

Certainly you can tell from recent trends whether or not prices and mortgage interest rates are in your favor. Monthly prices have risen year-over-year for three years. Mortgage interest rates are slowly rising, but remain at extremely attractive levels.

You could wait for prices to fall, but there are two problems with that idea. First, it would take an economic recession to lower prices, which could take months or years. With the exception of the Great Recession, you won't know if you're in or out of a recession until the talking heads online inform you.

Second, mortgage interest rates have been kept artificially low for five years. That's a very long time. With steady gains in employment, it's not likely they will go any lower. In fact, higher interest rates could wipe out any gains you could save by waiting to buy.

Here's a real life example:

If you buy a home and get a $200,000 30-year, fixed-rate mortgage at 4.5 percent, your monthly payment will be $1,013.37 and you'll pay $164,813.42 in interest over the life of the loan.

The same home at 5.0 percent interest costs $1,073.64, a difference of $60.27 more per month and $186,511.57 in interest over the life of the loan. The difference in interest payments alone is $21,698.15.

If your home dropped 5% in value and you were able to buy it at $190,000 and 4.5% interest, your payment would be $962.70, a difference of $50.67 per month, with $156,572.75 in interest over the life of the loan. You'd save $50.67 more per month than if you'd paid $200,000.

At 5.0 percent, your $190,000 home costs $1019.96, or $53.68 more per month than if you'd gotten the loan at 4.5 percent. Your interest payments would total $177,185.99 over the life of the loan. The difference in payments is $20,613.24.

Currently, mortgages for borrowers with good credit are around 4.00 percent. If you had purchased your $190,000 home a year and a half ago when prices were lower and interest rates were at 4.00% interest, it would cost you $907.09 per month and a total of $13,6552.06 in interest.

The question is -- did you?

There's never a perfect time to buy a home and you shouldn't buy a home just for financial reasons. Buy your home to raise your family, be close to friends and relatives and to be free from a landlord where you get nothing back but cancelled checks at the end of the lease.

Don't put your dreams off to gamble with the market. Think of getting the home you want at a reasonable price and payment as the best way to beat the market.

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  About the author, Blanche Evans

3 comments

  • Comment Link Terry Naber Monday, 20 April 2015 4:18 pm posted by Terry Naber

    A low fixed-rate mortgage is your best hedge against inflation. As rents go up and prices on homes go up, your mortgage payment will stay low with only slight variations for taxes and insurance escrows. When rates do go up, assumable fixed rate mortgages like FHA and VA loans will be a valuable commodity.

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  • Comment Link Dave Hurt Sunday, 05 April 2015 12:23 pm posted by Dave Hurt

    They are accurate, Just did a refi one month ago at 3.875. Still under 4 with good credit!

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  • Comment Link Christi Leatherman Friday, 03 April 2015 10:28 am posted by Christi Leatherman

    A year and a half ago interest rates were lower than 4% for persons with good credit. I think there is a typo in one of your last paragraphs.

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