As a home buyer would you rather wait for home prices to fall 5%, while mortgage interest rates climb by ½ %? Or buy a home now and get the current interest rate? Today, I am going to compare some scenarios and look at the effect on the monthly principal and interest payment. Here is the basic scenario: I am going to use a $150,000 purchase price using a FHA mortgage with a 6.5% interest rate. FHA mortgages require a 3% down payment from the buyers. The remaining scenarios increase the interest rate, lower the interest rate, lower the purchase price or a combination of both.
1. Buy a home today with an interest rate of 6.5%
Purchase Price: $150,000
Loan Amount: $148,800
Interest Rate: 6.5%
Principal and Interest: $940.51
2. Wait and buy a home, but interest rates increase by ½ % to 7%
Purchase Price: $150,000
Loan Amount: $148,800
Interest Rate: 7.0%
Principal and Interest: $989.96
It costs you an extra $49.45
3. Wait and buy a home, but interest rates decrease by ½ % to 6%
Purchase Price: $150,000
Loan Amount: $148,800
Interest Rate: 6.0%
Principal and Interest: $892.13
It saves you $48.38 a month.
Now ideally, every home buyer would love to get a lower price on a home. The following scenarios use a purchase price of $142,500. But what happens if rates go higher or lower.
4. Buy a home at a lower price and with a 6.5% interest rate.
Purchase Price: $142,500
Loan Amount: $141,338
Interest Rate: 6.5%
Principal and Interest: $893.36
Compared to example #1 it saves you $47.15
5. Wait and buy a home at a lower price, but pay a higher interest rate.
Purchase Price: $142,500
Loan Amount: $141,338
Interest Rate: 7.0%
Principal and Interest: $940.33
Compared to example #1, it saved you 18 cents.
6. Wait to buy a home at a lower price and a lower interest rate of 6.0%.
Purchase Price: $142,500
Loan Amount: $141,338
Interest Rate: 6.0%
Principal and Interest: $847.40
Saves you $45.96 a month.
Compared to example #1 it saves you $93.11
With each price range scenario it ultimately saves or costs you an additional $45 by waiting for a lower interest rate or paying a higher interest rate. Instead, home buyers should focus on finding the best home for you and your family.
Steve
Best regards,
;)
;)
