After reading a recent article in Realtor Magazine (3 Questions you need to help Buyers Answer April/May issue 2011) I started thinking about some issues buyers should look at when considering whether to buy a home or wait on prices to fall further. The info below is just my opinion and the example is a random amount I used for the sake of ease. All calculations were done on a simple loan calculator available online and all readers are encouraged to use their own numbers and interest rates to see how the interest rate could affect them personally.
In this post I would like to examine the cost of a home versus the price of a home. In the current market many buyers are taking the "wait and see" approach and watching home prices to see if they are going up or down. While there is nothing wrong with this method I believe that there should be one more factor added, COST! So what is the difference? The price of a home is the set amount the seller sells for and can arguably include the fees and charges associated with the sale. The cost is what the buyer pays back to the bank. Of course there are other items that are part of the cost of the home such as HOA fees, insurance premiums and so on but in this instance I want to focus on just the interest rates and there effect on the cost of a home. Just for an easy example lets use a 100,000 dollar 30 year loan with no points. A 5 percent interest rate means that your payments are 536.82 per month resulting in you paying back 193255.20. Now the same 100,000 dollar loan with the same 30 year term except this time we have a 6% rate and your payments end up being 599.55 resulting in you repaying 215838. Now the effect of 1 percent higher interest rate just cost you 22582.20 over the term of the loan. In this respect interest rates are a major factor in the home buying process. So when you are deciding on whether or not to buy take a moment and consider the outlook on interest rates along with the outlook on prices.
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