There are a lot of homebuyers sitting on the sidelines right now as they hope and wait for mortgage rates to drop. If you are one of them, keep reading. Brandon Hays with OneTrust Home Loans is here to explain why waiting for mortgage rates to drop may not save you any money in the long run.
Let’s say this is your situation:
You are currently renting in Bozeman at $3,000 / month. You find a home in Bozeman listed at $600,000. Because buyers have more leverage now than they ever did over the last few years you are able to negotiate with the sellers to get a sale price of $570,000.
- You put 10% down and get a $513,000, 7%, 30-year fixed loan
- Your Principal and Interest payment is $3,413 a month
- Mortgage insurance (because you put less than 20% down) is $235/month
- Making your total payment $3,648 (not including taxes and property insurance)
Instead of going through with the sale, you decide to wait a year and hope that rates fall.
And they do! Except now that rates have fallen there are more buyers in the market again, and that same home is now going for $650,000 and the sellers are not willing to negotiate.
- So, you put 10% down and get a $585,000, 5%, 30-year fixed loan
- Your Principal and Interest is $3,140/month
- Mortgage insurance is $270/month
- Bringing your total payment (not including taxes and property insurance) to $3,410/month
By waiting a year to purchase a home, you save about $240/month on your monthly payment. But what else happened when you waited a year?
- You lost out on the home’s $50,000+ in appreciation
- You went an additional $72,000 in debt
- You gave up about $5,200 equity gain by paying the principal on your mortgage
- You didn’t get the mortgage interest deduction on your taxes that year
- And you spent $36,000 in rent
What if you were the crazy one who bought a year ago at 7%?
- Now that rates have dropped you can refinance into a 5% loan
- Your home is now worth $650,000
- You refi into the 5% rate with a loan-to-value below 80% which means you no longer have to pay the $235/month in mortgage insurance
- Your new Principal and Interest payment is $2,754/month
- Your payment just dropped over $890/month
- And it's $650/month lower than if you had waited the year!
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