Is it a good time to purchase a home?
This is a question I and probably most brokers are asked on a regular basis. Is now a good time to buy or should I wait? Well, the answer is more subjective than you may think. The short answer is, can you afford to buy a house now?
Interest rates versus the purchase price is a relatively easy equation to calculate. For instance if you were to pay $500,000 for a home with 20% down at 3% interest rate over 30 years, your monthly mortgage payment would be roughly $2,464.08 with taxes and insurance.
Now let’s calculate that same purchase, $500,000, 20% down at 5% over 30 years. Your monthly payment jumps to $2,924.95 with taxes and insurance. Over the span of 30 years, you’ve spent an additional $165,913.20 on that same mortgage if the rate were 3%. Obviously that is a substantial difference, but it comes with a catch.
Now let’s play with those same numbers, but in a seller’s market. Let’s say that same home was listed for $500,000, but goes into a bidding war and you end up purchasing it for $550,000 instead of the original list price of $500,000. You are clearly saying money over 30 years at a 3% interest rate, roughly $115,913.20. However, you now have to put more money down. 20% down on a $550,000 purchase price is $110,000, rather than the $100,000 down on $500,000. So as long as the buyer is comfortable and can afford the additional $10,000 down, you come out ahead in the long run as you are saving money with the interest rate over time.