The price of a home is fixed. Interest rates can change, so you might wait for prices to go lower, but what you don’t realize is that prices have to drop significantly to equal a minor fluctuation in mortgage interest rates.
A quick visit to a mortgage calculator will show you the following:
If you buy a home at $150,000 and a 30-year, fixed-rate mortgage at 4.0%, your monthly payment will be $872.37 and you’ll pay $100,679.26 in interest over the life of the loan.
The same home at 4.5% interest costs $916.28, a difference of $43.91 more per month and $116,110.07 in interest over the life of the loan. The difference in interest payments alone is $15,430.81.
If your home dropped 5% in value and you were able to buy it at $142,500 and 4.0% interest, your payment would be $828.75, a difference of $43.62 per month, with $95,645.30 in interest over the life of the loan. You’d save about $5000 in interest over the life of the loan.
At 4.5%, your $142,500 home costs $870.46, or $41.71 more per month than if you’d gotten the loan at 4.0%. Your interest payments would total $110,304.56 over the life of the loan. The difference in payments is $14,659.26.
Home prices today are still fairly low, as are interest rates, but both seem to be moving upwards. This appears to be a great time to buy a home.