Should I Buy or Wait?

Should I buy now or wait a year as prices are dropping, but interest rates are rising?

I hear this question daily, and my usual answer drones on about interest rate projections, supply, and demand for homes blah blah!! So I thought I would run the numbers and see what makes the most sense based on the numbers, not my opinion!

Option 1 - If you bought a home for $100,000 and put 5% down and had an interest rate of 3.59% on a 5-year term amortized over 25 years you would have monthly payments of $498.46.  At the end of the first year, you would owe $96,397. That is a decrease in your mortgage of 2.53% over the first year.

Option 2 - Let's assume the housing market dropped by 3% over the next year and interest rates went up by 1/2% (most economists are predicting a 3/4% increase in that period). So instead of a $100,000 purchase, you only have to pay $97,000 and put 5% down, but the rate would be 4.09% with monthly payments of $509.29.

Now let's look into the future and see which option has the lowest mortgage 5 years from the start of Option 1.

Option 1 - mortgage balance is $85,467
Option 2 - mortgage balance is $86,300

Plus under Option 2, you would have paid $480 more in monthly mortgage payments over the last 4 years than you would with Option 1 for a total savings of $1,313 per $100,000 in purchase price if you buy now instead of waiting a year.

If interest rates do go up as projected by 3/4% over the next year, we are looking at savings that would offset a drop of closer to 5% in values.

If you want to discuss your personal situation and have me run your numbers, please let me know as knowledge is power, and having the info will help you sleep better?  Call Daryl French at 250-470-8843.