Interest Rates and Buyer Buying Power
I have fielded calls from buyers who had wanted to buy in the last year but felt they were priced out of the market. After a break, they are back, wondering what their next move should be. They want to pay what prices were over a year ago, not what prices are now with demand being high. However, is it really worth waiting for prices to come down (if they come down)?
Let’s look at an example. If you are considering the purchase of a $600,000 home and you want to “save” money, so you decide to “wait” until prices fall by 5% – or $30,000. But let’s look at the numbers if you were to purchase the $600,000 home today at today’s low interest rates:
| Home Price | $600,000 |
| Down Payment | $120,000 |
| Loan Amount | $480,000 |
| Interest Rate | 3.75% |
| Monthly Payment | $2,223 |
| Amount Paid Over Life of Loan | $800,263.74 |
But let’s say you decide to wait in the hopes of purchasing the home for $575,000 … and in the meantime rates creep up to 5.5%.
| Home Price | $575,000 |
| Down Payment | $115,000 |
| Loan Amount | $460,000 |
| Interest Rate | 5.5% |
| Monthly Payment | $2,612 |
| Amount Paid Over Life of Loan | $940,258.59 |
Over the course of 30 years, that additional $389 you pay each month adds up to an additional $139,995. The point of the story? Waiting to “save” money by hoping prices will drop may well cost you far more than your expected “savings”.
