Many potential buyers recently expressed concern about house prices skyrocketing and have consulted us about the timing of their purchase and, Is it a good time to buy a house now? Many people want to know, Is it wise to wait until house prices go down? We explain that, “It is not the higher house prices that should factor into this decision but the risk of interest rates going up sooner than later”. Let us explain:
Most people in today’s market take out a loan for around $250,000-$350,000.
The monthly loan payment is composed of principal and interest. The first chart illustrates a $300,000 loan for 30 years with a $1,185 monthly payment at a 2.5% rate. The 2.5% loan’s amortization schedule shows the interest $625 and the principal $560.36 In contrast, the same $300,000 loan amount but with a 5% rate will shoot up your payments to $1,610 a month, $425 higher than the 2.5% rate. The bulk of the monthly payment is $1250 in just interest and only $360.46 principal.
The interest rates are at record lows and we do not know how fast and when they will go up. Based on the economics of supply and demand, when interest rates go down prices go up because more people are able to qualify and housing demand goes up which makes prices go up.
The second chart illustrates how two completely different loan amounts have the equivalent monthly payments based on their interest rate alone; (The illustration does not include taxes and insurance) This shows that you can buy a house worth $100,000 more and still pay the same amount with your interest rate 2.5% and not 5%.
If you are one of those people that do not want to purchase now because of the increase in house prices the past year, you are not looking at the big picture. It is important to consider the cost of the house, but it is even more important to consider the cost of the money you are borrowing. Data does not lie and you have to look at the big picture when analyzing, when is the best time to buy a house? In today’s case in the DFW market, THE BEST TIME TO BUY A HOUSE WAS YESTERDAY!
*Illustration purposes only. Not an offer to lend money. Please consult a mortgage professional.
