Here’s why locking in a low rate is smarter than waiting for prices to drop.
Interest rates have been in the news a lot lately, and the general consensus is that rates will rise over the next few years. How does this affect your home purchase and your monthly mortgage payment? Is it a good idea to wait to buy, in the hopes that prices will level out? We’re answering these questions and more today.
Let me address the importance of today’s low rates using a few different examples. The first example is a home priced at $350,000. You decide to gamble and wait to see if prices drop over the next few years, and you end up being wrong. The home is worth $400,000, and interest rates have risen from 3% to 5%. That takes your monthly mortgage payment of $1,402 up to $2,040. That’s an enormous, significant increase in the amount you’ll pay for your home over the life of your loans.
“Even if prices drop, an increase in rates will make homeownership more expensive.”
The second example is the same home, but the price stays at $350,000 instead of going up or down in value. However, rates have still risen by 2%. This is going to balloon your monthly payment from $1,402 to $1,785 on a home with the same price.
Finally, let’s say you wait to buy and the home drops in value from $350,000 to $300,000. If interest rates still go up 2%, your mortgage payment is still going up about $128 per month. Over the course of a 30-year mortgage, the extra interest wipes out any savings you got by buying the home at a lower price.
I hope these illustrate the importance of locking in a low interest rate as a homebuyer. If you want to lock in a rate now or have any questions at all about buying a home, don’t hesitate to reach out via phone or email. I look forward to hearing from you soon.
