Yes, Mr. and Mrs. Smith, another few days and you could wind up paying an additional $20K for your home, but if you lock in that rate today, you can drive this beautiful custom- built, split level ranch off the lot for just 3.5% down plus tax and insurances, and I’ll even throw in a set of white-walls.
Alright, maybe a little exaggeration – I realize most homes don’t need white-walls, but the comparison to the pitch of another somewhat maligned profession can’t be overlooked.
But, it’s true! Now, I’m sure you know that if your interest rate is higher you will pay more for your home, monthly and in the long run. This harsh reality never really struck me until I heard a rather surprising statistic at a home buyer’s seminar about 5 or 6 years ago. I was recently reminded of that seminar by a client who said he was still paying on a $60K loan he borrowed back in the 80s, when the rates were so high they could have been basketball scores.
This simple data from the seminar gave me the urge to run out into the street with a large placard that said, if you don’t buy now, you are completely beyond help… Fortunately for me, I didn’t do that. And fortunately, since that time, rates have actually gone down even further, but I digress…
The statistic was that for each additional “point” you pay on your mortgage – say for instance 5.5% instead of 4.5% of your loan amount, you will be paying 10% more a month in mortgage payments, and over the life of the loan, on a $100K house, you will pay about another $20K, if that loan is taken to the full 30 year term. On a $200K home, using those same rates, you would pay approximately $44K more. Is it hitting you like it hit me?
So why are you just sitting there, pick up that placard and hit the street!
Actually, where this really becomes a point of evaluation is when you’re trying to decide whether to buy now or when prices drop, or more comes on the market. Consider the fact that if rates go up just one point then your purchasing power is 10% less, or put differently, if you could afford to purchase a $100K home, you can now, for the same money, only afford a $90K home, or, if you were going to purchase a $400K home, the same loan amount at a higher rate (1%) would only purchase a home that is $360K(all monthly payments being equal).
Now math is not really my thing, in fact, I was voted most likely to screw up my checkbook ledger, and there may be those of you out there that “already knew that” and “why is she talking down to us…..etc. etc.” I get it! But if you are considering a purchase, even though prices have risen, this is the real estate version of a Black Friday sale!
And that is the good news in all of this. Rates are pretty much at the lowest they’ve ever been! – but who knows when that will end. And while there is a bit of a mini stampede to buy houses right now, there are still some nice homes available, some even have white wall tires!