Rates are high. There’s no denying that. And as a house hunter, you’ve most likely considered pressing the pause button on purchasing a new home until rates drop so you can save on your monthly payment. But is this wise? Let’s look at an example.
Consider two homebuyers.
The first buys a home today at $600k with 20% down and a 7.5% 30-year interest rate.
The second waits for rates to drop to 6.0% and puts down 20%. But by that time, more buyers have hopped into the market driving the price up to $650k (a conservative estimate of less than 10% appreciation).
Who comes out better in the long run? Assuming the average first time homebuyer will upgrade to a new home in 5 years, let’s look at that snapshot.
Over the first 5 years, buyer #1 will spend ~$220k on interest and $600k on the home. Buyer #2 will spend ~$188k on interest and $650k on the home. Ultimately, buyer #2 waited to save ~$30k on interest only to pay $50k more for the home.
And this isn’t to mention, buyer #1’s ability to refinance down to 6% and save even more AND buyer #2 having to come out of pocket for a bigger down payment to avoid PMI!
So consider what you’re missing out on when you decide to wait to buy a home. Not only are you losing money on the purchase price, but you’ll also spend more money on rent and on the down payment as prices appreciate.
