This is a topic that I’ve answered hundreds — if not thousands — of times and it is always an eye-opening experience for people.
It is a pretty interesting idea. If interest rates go up by 10%, which would only be 0.45% putting us from 4.5% to 4.95%. That isn’t much a bump when you look at the historical tracking of rates.
Ahh, but you are concerned that the house will go down by another 10% before hitting bottom.
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The idea is pretty simple. There is a cost associated with waiting to buy a home. Is it going to make or lose you money? Well that depends. For example, if the market has stabilized and interest rates go up by 10% over the next year, then you’ll pay 5.3% more on the average home in Central Ohio today. However if rates stay at historic lows and prices slip another 10% then you have the chance to save yourself 10% per month on your loan payments.
| Category | Today | Rates Up 10% | Price Down 10% | Both |
|---|---|---|---|---|
| Price+/td> | $225,000 | $225,000 | $202,500 | $202,500 |
| Interest Rate | 4.5% | 4.95% | 4.5% | 4.95% |
| Loan Amount* | $217,125 | $217,125 | $195,413 | $195,413 |
| Monthly Payment | $1,100.14 | $1,158.95 | $990.13 | $1043.06 |
| Versus Today | n/a | -5.3% | +10% | +5.2% |
Assumes a 30-year fixed-rate mortgage; + – avg. Central Ohio home sales price; * – based on 3.5% down payment.
The numbers say it in plain and easy to understand English. It is based on how confident you are in your current market and the course of interest rates over the next “x” period of months.
Also keep in mind, this is a “simple” comparison. It doesn’t take into account:
- Cost of Living – Unless you live at home with Mom & Dad there is some type of expense to your current living situation.
- Tax Implications – While I’m not a “fan” of the buying a house to save money on your tax theory, it does have an implication on the “real” cost of your home.
- Taxes, Insurance, Private Mortgage Insurance – Due to the fact that they are similar from year-to-year, I’ve excluded them from the analysis. However if an extra year would allow you to save enough money to keep from paying private mortgage insurance it would be a huge change in this price analysis.
Which again is why you really need to sit down and talk with a professional — I have a great person in mind — to assist you with breaking the numbers down to make sure they work.
So is it a good time to buy?
Ohh, now you’re trying to trick me. The standard answer is “that depends” and I’ll know that is as clear as mud. It all comes down to you and your family’s individual situation. Contact Toby today and we’ll schedule a no-pressure meeting to look at your financial situation and whether this is a good time to buy a home.
