Now don’t worry, this isn’t one of those ‘Buy Now!’ kind of posts or one that promises a big bold future. Rather, it’s a post about simple math – because when you are considering buying a house, you need to contemplate everything – and it’s my job to provide the awareness of ‘everything’ to you.
Lorcan Lucey, one of my favorite mortgage brokers in Charleston because he gets the increasingly difficult job done, sends out a monthly rate update newsletter. His most recent one tells a tale about why waiting for a price decrease on a house you love could cost you the big bucks over the long run. Here’s the excerpt:
Rate versus Price Reduction
Since the Fed‘s Mortgage Backed Securities purchase program ended, the markets have seen much more volatile price swings…and rates overall are off their lows. For potential buyers who are waiting to see if home prices come down a little more, that means the wait could well cost you more money in the long run.
Let’s look at an example to see why. Say a home buyer wants to buy a home that costs $300,000. But the buyer wants a better deal on the home, so she delays a transaction until the home is reduced by $10,000. If, in the meantime however, rates were to rise .75% to 6.00% and the buyer financed 90% of the purchase price, the amount of total payments over a 30-year term would be over $35,000 more than paying the $300,000 purchase price and locking in the 5.25% interest rate. In other words, the buyer would save $10,000 only to end up paying $35,000 more.
Now obviously, very few people live in a house for 30 years, and no one knows what the mortgage rates will look like tomorrow, or if your credit score will go up or down, but the consider the increase in monthly payments with a rate increase like that? The difference is a little over $100 a month.