If you are currently in the market for a new property you have to think more about the COST of that property and less about the price. What do I mean by cost? The cost of a given property includes but is not limited to the mortgage principal, interest, insurance and property taxes. The key variable being interest. Why is interest so important? The amount of interest you pay depends on the interest rates at the time you buy your home. It just so happens interest rates are currently at about 5%, a historic low. The average interest rate over the last 20 years is about 9% and according to most, they are headed back in that direction. I have included a chart below showing the interest rate history over the last 30 years.
So back to why interest rates matter. Lets say you buy a house today for $300,000. On a standard 30 year mortgage your monthly payments (principal and interest) would be $1,610.46.
Now lets say you waited a year to buy because some analysts are saying we have another 10% decrease coming. You now have paid $270,000 (10% less) for the same house you looked at last year. But wait, interest rates have gone up and you get a standard 30 year mortgage at 6%. Guess what your monthly payments would be, $1,618.79. Only $8.00 more per month. That’s not so bad. But what if rates are at 7%, your payments would be $1,796.32 per month. Now your looking at an increase of almost $200 a month! That is a big deal. Yes, home values may go down another 5% or 10%, but interest rates have nowhere to go but up. The time to buy is now.
The point of this post is not to get you worried about interest rates, but to get you thinking about the other factors involved when purchasing a property. Price isn’t as important as most think. Remember, when you want to buy, think COST not price.
I hope you found this post helpful. You can visit my blog for more Real-Estate related information.