Playing the Waiting Game on Interest Rates
This practice may cost Home Buyers (first time and move-up) more than they think…
“The sooner, the better” may be the best strategy for buying houses. That’s because lower interest rates can actually mean higher costs for those who delay the purchase of a home too long.
When there are fluctuations in mortgage rates, Americans have a habit of waiting just a little while longer, hoping to save thousands of dollars as the rates dip lower. But, even if the rates do fall further, that wait strategy can actually cost you more.
Home buyers tend to forget that as mortgage rates drop, housing prices tend to begin raising.
Here’s an example of what might typically happen:
A $150,000 house is purchased with a down payment of $30,000 and the balance is financed at a fixed 8.75% interest rate over 30 years. Monthly principle and interest payments come to $944.05.
If the buyer chooses to wait until interest rates drop to 8.5% and, in the meantime the cost of the house climbs a modest 2%, which is a common increase in an interest-driven market, the monthly payment would raise to $945.78.