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  • Writer's pictureYour #1 Phan

Lower Price or Lower Interest Rate

In a buyer's market, buyers wait for signs that prices are going lower. In a seller's market, buyers don't wait because they're afraid prices will go higher. Both markets move on the fear of paying too much. Should you wait for lower prices or lower interest rates before you jump in?

Consider the following: The price of a home is fixed. Buyers have figured out that interest rates can change, so they wait for prices to go lower, but what they should consider is that prices have to drop significantly to equal a minor fluctuation in mortgage interest rates.

A quick visit to a mortgage calculator will show you the following:

  • If you buy a home at $200,000 and a 30-year, fixed-rate mortgage at 4.5%, your monthly payment will be $1,013 and you'll pay $164,813 in interest over the life of the loan.

  • The same home at 5% interest costs $1,073, a difference of $60 more per month and $186,511 in interest over the life of the loan. The difference in interest payments alone is $21,698.

  • If your home dropped 5% in value and you were able to buy it at $190,000 and 4.5% interest, your payment would be $962, a difference of $50 per month, with $156,572 in interest over the life of the loan. You'd save $50 per month than if you'd paid $200,000.

  • At 5%, your $190,000 home costs $1019, or $53 more per month than if you'd gotten the loan at 4.5%. Your interest payments would total $177,185 over the life of the loan. The difference in payments is $20,613.

Knowing how your monthly cost changes with the differences in loan terms can help you see opportunities more clearly. As your agent, I will work with you and your preferred lender to put together creative ways to meet your home ownership goals.

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