Last Updated on July 14, 2022 by hortonteam
With interest rates near record lows, now is a great time to buy a home—but what if you want to wait? Learn why sleeping on interest rates may cost you in the long run.
Volatile Interest Rates
The past year has been phenomenal in terms of interest rates, and rates have continued to drop as of June 2019. While that is great news for buyers currently looking for a home, people who are hoping to delay a home purchase could potentially suffer from future rate hikes. Although current rates have hit a 16-month low, history shows that these rates will eventually begin to climb once again. When that happens, even just a small percent change in interest rates can lead to a huge discrepancy in what you expect to pay versus what you will be paying, especially if the life of your home loan lasts the entire fifteen or thirty years.
If your mortgage professional has locked in your interest rate long enough for you to purchase a home, you won’t have to worry about much. However, if you are waiting several months or maybe even a year before buying a home, there’s a possibility that your rate could increase.
Let’s run some sample math to see how these changing interest rates could affect your wealth:
Sample Math: 15-Year Mortgage with 1% Interest Rate Increase
Constants:
Mortgage amount: $100,000
Mortgage duration: 15 years
Interest rate: 4%
Monthly payment: $740
Annual payment: $8,880
Total interest paid: $133,200 – $100,000 = $33,200
Interest rate: 5%
Monthly payment: $791
Annual payment: $9,492
Total interest paid: $142,380 – $100,000 = $42,380
Total difference after 1% interest rate increase: $9,180
Increasing interest rates always lead to paying more in the long run. As seen above, just a 1% increase on a 15-year loan yields an extra $9,180 that must be paid off. If that doesn’t sound like a lot of money to you, check out the math below on the much more common 30-year mortgage.
Sample Math: 30-Year Mortgage with 1% Interest Rate Increase
Constants:
Mortgage amount: $100,000
Mortgage duration: 30 years
Interest rate: 4%
Monthly payment: $477
Annual payment: $5,724
Total interest paid: $171,720 – $100,000 = $71,720
Interest rate: 5%
Monthly payment: $537
Annual payment: $6,444
Total interest paid: $193,320 – $100,000 = $93,320
Total difference after 1% interest rate increase: $21,600
As you can see, even just a 1% increase in your rate can drastically alter the final amount you will pay. By increasing from 4% to 5% interest on a 30-year mortgage, you will end up paying $21,600 more by the end of the loan.
What do increasing interest rates mean for me?
We aren’t crystal ball readers, but we do know that most trends in real estate are cyclical. It’s true that interest rates have been declining for some time, but like we said before, this almost always means that they will eventually begin to rise. If you are financially able, it’s best for you to take advantage of these lowering rates as soon as you can. You may be thinking that by waiting a little longer you’ll be able to lock in an even lower rate—and that could be true—but if you wait too long and rates begin to rise, you’ll end up sacrificing much more money than you would’ve previously needed.
...if you wait too long and rates begin to rise, you'll end up sacrificing much more money than you would've previously needed. Click To TweetWhen buyers contact our Newburgh Homes team, we tell them that now is the perfect time to buy. Even though you may be able to secure a lower rate in the future, you’ll regret not acting sooner if you end up waiting too long. Are you planning on purchasing a home soon? Send us a message on Facebook and we’ll help you get started on your home buying journey today!
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