Everyone knows interest rates are a factor when making a large real estate purchase, but have you ever really figured out how much of a difference they make? Trust me, it is worth 3 minutes of your time to read this if you ever purchase real estate!
Most buyers are primarily concerned with the price of their home, and while this should be paramount in your real estate search, looking long term at interest rates is of equal importance.
Let me explain.
Most experts agree real estate has peaked and we will see prices soften for 2019. Financial experts are forecasting interest rates to creep up through 2019.
What is a buyer to do? Wait for home prices to drop or take advantage of lower interest rates now?
Let’s use a $500k house with a 20% down payment for an example.
For every .25% rise in interest rates your monthly payment will increase by $63.00 and you will pay $22,400 more over the duration of the loan!
Let’s play out a scenario:
Buy in Today’s Market
- Loan $400k with a current interest rate of 5.25% for a monthly payment of $2,209.
- Total interest paid over life of loan= $395,173.
- Total Paid: $895,173
Buy in 6 Months When Home Prices May Be Lower and Interest Rates Higher
- $480k home (price of home dropped $20k) with 20% down.
- Loan $384k with an interest rate of 6% for a monthly payment of $2302.
- Total interest paid over life of loan = $444,818.
- Total Paid: $924,818.
Use a mortgage calculator to make your most informed purchase!
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