With the terrific loan programs still available for qualified buyers, the $8000 tax credit for first time buyers, AND prices at a 20-30% discount in our market. It is a FABULOUS time to buy now and try to close before November 30. One of my clients shared with me today however that they felt if they waited another 6 months, they could save an additional $10,000 to $20,000 in cash to help their buying power. I told them I completely respected that decision, and its never a BAD idea to save money for future purchases.
What I also shared with them however is that they need to keep an eye on the interest rate environment, because that perceived increase in purchasing power can all but be wiped away if the rates go up even slightly.
For the purposes of this illustration. I am using rates based on the 5 year ARM, since thats what this client was considering. I am not a mortgage banker or broker, and the rates used here may not reflect actual rates for you, but it will work for the purposes of the illustration.
Mortgage Amount: $228,000
Today's Rates: 4.25% on the 5 year ARM
Payment is $ 1121 per month for principal and interest
If the rate goes up by just three quarters of a percent to 5.00%. To get that same payment, watch what happens:
Payment $ 1116/month for principal and interest
Rate 5.00%
Mortgage Amount: $208,000
So if you saved an additional $20,000, but the rate moved up by just .75% (which is not a big adjustment in this type of economy), you have not gained any additional purchasing power, as to get the same payment, you have to now borrow $20,000 less. This same argument also holds true that if prices come down another $20,000, if the rate goes up, it offsets that reduction in price.
Now is a GREAT opportunity. I'm not here to pressure you into anything...I am just here to show you why now presents a unique chance to be a homeowner, AND possibly receive $8000 as a free incentive to buy a house. This has never happened before in our history, and who knows when it will happen again. Rates may not go up tomorrow, but they WILL go up at some point in the near future I believe. How much to you want to try to time the market?
Sean Carroll - Realtor, Sales Associate
RE/MAX Classic Group
908-898-0800
www.TeamCarrollNJ.com
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It's great to see a Realtor who understands the difference between Cost vs Price. The easy rule of thumb that I example for consumers and Realtors alike is the fact that an 1% increase in mortgage rates will offset any benefit of a 10% reduction in the price of the home. The monthly payment will actually increase slightly. Therefore, keep informing consumers to get off the fence and don't hesitate as it may cost substantially more in the long run.