Wait Doesn't Necessarily Lead to a Lower Payment
To calculate the true cost of waiting to buy a home versus buying now with the potential to refinance in the future when interest rates might drop, let's compare the financial implications of the the below scenarios:
Here are the assumptions for this comparison:
Scenario 1: Buying Now
Purchase Price: $440,000
Down Payment: 10% ($44,000)
Loan Amount: $396,000
Mortgage Rate: 7.50%
Scenario 2: Waiting a Year and Then Buying
Future Purchase Price: $528,000
Down Payment: 10% ($52,800)
Loan Amount: $475,200
Mortgage Rate: 6.25%
Comparison: Buying now at a 7.50% interest rate would result in an estimated monthly payment of about $2,888.97 (principal and interest). If you decide to wait and the mortgage rates were to decrease to 6.25%, the monthly payment for the same home that has appreciated in price as you have waited to purchase, you would be paying approximately $2,930.06 (principal and interest), actually slightly higher than buying now due to the higher projected home price. Also, buying NOW potentially has other benefits:
Immediate Equity Building: By purchasing a home now, you start building equity immediately, as opposed to waiting and potentially paying more for the same property due to appreciation.
Locking in Current Prices: Home prices are projected to continue rising, so buying now can mean getting ahead of further increases in property values.
Potential for Refinancing: If interest rates do drop in the future, there is the opportunity to refinance to a lower rate, potentially saving money over the long term.
Less Competition and Motivate Sellers: The housing market often slows down as we head into the holiday season as people are less inclined to move during this time of year. Fewer buyers in the market can mean less competition for homes, giving remaining buyers more negotiating power. When sellers are more motivate to sell they may be more willing to negotiate on price, repairs and concessions to include helping pay for the buy down your interest rate.
The scenario illustrates that waiting for a lower interest rate does not always guarantee lower monthly payments, especially if home prices continue to rise as projected. These figures are simplified and do not include other costs like property taxes, insurance, or PMI. Remember that these are generalized benefits and individual circumstances can vary. It’s always wise to consult with a real estate professional or financial advisor to understand how these benefits apply to your personal situation.