What is the Cost of Waiting to Buy a Home?
We happen to be in a very fortunate window of time where interest rates and prices are low at the same time (an occurance that really has not happened since the end of World War II). Many people are still concerned about falling prices which has them sitting on the fence, waiting to see if they will go lower. The challenge here is that a change in your interest rate has nearly a ten-to-one impact on your monthly payment over a change in price. So even if prices go down but interest rates go up, any monthly savings could be very easily wiped out.
The example below illustrates the difference in payments on an FHA loan for a home purchase where the price drops over $10k while the interest rate goes up 1%.
| Buy Now |
Wait to buy - Price Goes Down and Rate goes up |
|
| Purchase Price | $302,900 | $287,000 |
| Loan Amount | $292,298 | $276,955 |
| Interest Rate | 4.75% | 5.75% |
| Term | 30 Year | 30 Year |
| Payment | $1,524 | $1,616 |
| Cash Down | $10,601 | $10,045 |
| Monthly Savings | $92.00 | $0.00 |
Savings 5 Years: $5,520. Compounded interest will be much more.
