You’ve probably noticed or heard that interest rates for mortgages are creeping upward, along with housing prices. Some homebuyers and shoppers have seized the opportunity to get in now and buy a new home more affordably. Others are still hesitant. Why are you still waiting to buy a new home? The reality is simple: buy now or pay (more) later. Homes By Taber will show you what procrastination is costing you.
For interest rates, as you see those numbers to the right of the decimal get higher and higher, it might seem like a negligible amount. What’s the big deal between 4.5% and 4.8%? It’s still pretty low, right?
Yes, when you compare it to the horrific rates your parents paid—as high as 13.84% in 1984! By today’s standards, every tenth of a percentage point matters.
A quick math lesson
Let’s do some math. Well, we’ll do the math. You just pay attention.
In May, the average rate for a 30-year, fixed-rate mortgage was 4.5%. Right now, that rate is at 5.04%. In 2019, expect that number to go to 5.3%, according to Kiplinger. Just over a year ago, we saw mortgage rates as low as 3.75%. A year from now, you might be looking at 5.5%.
Using a mortgage calculator, let’s assume you’re looking at a home priced at $250,000. If you’re putting 20% down—$50,000—you’ll finance $200,000. Here’s what the different rates would deliver for a monthly payment on 30-year, fixed-rate mortgage:
The cost of owning that home in 2017 versus 2019 is about $200 per month, $2,400 per year. The difference of one percentage point for this home is about $120.
Maybe your budget requires a lower down payment, like 5%. At $250,000, that $12,500, and a mortgage of you’ll finance $237,500. See the cost of waiting:
In this scenario, with 5% down payment, the difference of one percentage point is about $140 per month, and $1,680 per year.
The affordability factor
Bear in mind that the interest rates aren’t the only number heading upward. Housing costs are increasing as well. The lumber tariff sparked a spike in construction costs. So, the longer you wait, the higher the cost of a new home and the mortgage to pay for it.
You might have qualified to buy that $250,000 earlier this year at 4.5%. In 2019, that home could be $280,000 with as much as a 5.5% mortgage rate.
$250,000, 5% down, 4.5%: $1,704
$280,000, 5% down, 5.5%: $2,063
That’s $359 MORE per month. Would you still qualify? And if you did, are you prepared to pay $4,308 more per year for your home? If not, you will need to buy a lower-priced home.
Mortgage professional Beau Hodson explains that “if someone is on the edge of qualifying, they might need additional annual income to secure a mortgage now or buy less house. Last year, they even might have qualified on a slightly higher-priced home with that same income.”
Every month you wait to buy a new home will cost you. Even if interest rates go against all forecasts and drop, you can refinance. Make your move now and reap the rewards of a strong investment.
Homes By Taber builds single-family homes in communities throughout the OKC metro region, in highly desirable cities and towns that include Edmond, Norman, and Moore. Whether you decide to build or to buy one of our move-in ready homes available right now, you can lock in the price and interest rate with your choice.
Get started by talking to Frankie Lewis. He can guide you to the right community that fits your wish list.