Why Waiting to Buy a Home Is Bad Math (if you can afford it now)
It’s no secret that America is facing our most significant affordability crunch since the 1980s.
And the fact that the we’re coming off an amazing stretch of favorable affordability makes the recent crunch sting even worse (like returning from Cancun and walking into a blizzard).
If that’s you, you could be making the choice (or in some cases, feeling financially forced) to wait until interest rates drop to buy your next home.
I understand this decision and empathize - especially if you can’t afford to buy right now. However, from a financial perspective, waiting for rates to drop will likely NOT work out to be a better financial decision, mathematically speaking.
Why Waiting to Buy a Home Is Bad Math
Home Price: $500,000
Mortgage Term: 30 years
Downpayment: $50,000 (10%)
Loan Amount: $450,000
Mortgage Interest: 7%
Monthly Principal and Interest Payment: $2,993
It’s reasonable to do mental math envisioning buying that same home at the same price, just with a lower interest rate. After all, that’s the reason for waiting!
Here’s the math:
Home Price: $500,000
Mortgage Term: 30 years
Downpayment: $50,000 (10%)
Loan Amount: $450,000
Mortgage Interest: 6%
Monthly Principal and Interest Payment: $2,697
It seems, then, like waiting for rates to drop will result in monthly savings of roughly $300. Right? A great idea!
However, it’s more likely than not that when rates drop, buyer activity will increase and competition will drive home prices back up.
The result being:
Home Price: $550,000 (+$50,000)
Mortgage Term: 30 years
Downpayment: $50,000 (9%)
Loan Amount: $500,000
Mortgage Interest: 6%
Monthly Principal and Interest Payment: $2,997
This new payment on a $550K home at 6% is back with $4/mo of what the same home would have cost when it was $500,000 at 7%. Plus, now your new home cost $50,000 more.
There can be good reasons to wait to buy a house, but waiting on rates to drop likely shouldn’t be one of them.
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If you have a desire to buy or sell in the coming year, let’s chat.
Life has a way of keeping us all moving, and I’d love to be your real estate agent.
Contact me here to set up your free and confidential consultation.
Kevin
