Interest rates are beginning to rise. What kind of cost does this mean to you as a home buyer?
We’re often asked by buyers if they should wait until the market bottoms out to buy a house or just act now. It truly depends on what you’re trying to accomplish—are you just trying to get the cheapest possible price for a house, or are you more concerned with what it will cost you in the long run? There is a big difference between price and cost when it comes to buying a house.
It’s nearly impossible to predict when the market will bottom out. As you wait for the market to bottom out, interest rates have begun to rise. In November, we saw rates at 3.7%, and a little more than a month later, they were up to 4.37%. So if you wanted to buy a $250,000 house at the current rates, and then suddenly, rates went up just 0.25%, you’d need to earn an additional 3% more income in order to qualify for that same home loan. You’d also pay $9,500 more in interest payments on that same house over the life of the loan.
If rates were to go up a full 1%, it would cost you an additional $38,000 in interest over the life of that same loan.
So if you sit around waiting for the market to bottom out, you need to think about how much you’ll actually save when you factor in rising rates. You could simply act now and lock in a great, low rate that’s available; they’ve been at historic lows for the last few years. That window is still open, but it’s starting to close.
If you’re thinking of buying any kind of home, from a first home to a move-up house to a vacation home or investment property, the best time is now. If you have any other questions about getting a low rate now versus waiting for the market to bottom out, don’t hesitate to give me a call or send me an email. I’d be happy to help.