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How Waiting for Home Prices to Fall Can Cost You

By Troy D. Village

Mortgage and Lending with Stearns Lending, LLC

September 09, 2011 10:16 AM

How Waiting for Home Prices to Fall Can Cost You

If you're thinking about buying a home but are waiting for a further decline in housing prices, consider the following:

1) Trying to time the bottom of any market is difficult.

2) There's another cost factor that often gets overlooked: interest rate costs, particularly over an extended period of time.

Interest rates are hovering near their lowest level in more than 40 years. Lower interest rates dramatically affect savings when it comes to purchasing a home. On a $200,000 mortgage*, if interest rates increase from 4.5% (Annual Percentage Rate 4.665%) to 5.5% (APR 5.676%), the cost of your monthly mortgage payment increases $123, or 12.14% a month. If interest rates increase from 4.5% (APR 4.665%) to 6.5% (APR 6.687%), the cost of the mortgage increases $251, or 24.77% a month. (These are sample rates only; contact me for today's actual rates.)

If a homebuyer is waiting for a 5% reduction in the purchase price, even a slight rise in interest rates can easily wipe out the anticipated savings. On a $200,000 mortgage, a 1% increase in interest rates amounts to $1,476 per year. A 2% increase in interest rates amounts to $3,012 per year. These costs — over the life of a 30-year fixed-rate loan — are $44,280, and $90,360, respectively.

There are other factors to consider as well. Lower property values are making homeownership more attractive than renting in many markets throughout the U.S. The recently published Rent vs. Buy Index report by Trulia stated it's more affordable to buy than to rent a two-bedroom home in 80% of America's 50 largest cities.

Contact me today to learn how the lowest-ever mortgage rates combined with incredible home affordability have created many exciting opportunities for homebuyers.

* For example, a typical loan of $200,000 at a rate of 4.5% has 360 monthly payments of $1013.37; APR 4.665%. Monthly payment is for principal and interest only, and does NOT include payments for property taxes or insurance. Interest Rate and APR information is based on a $200,000 mortgage loan, with 1 discount point, 0 origination fees and standard processing and 3rd party fees.