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Understanding the Math

Happy Thursday – I hope you are doing well. For this week’s video I want to discuss buying now when rates are in the 6’s vs waiting until next year when we expect rates to be in the 5’s. I have spoken to a lot of people recently who are waiting to buy when rates come down. If you are in a situation where you can’t afford to buy, then this makes sense. However, if you do qualify and just think it makes more sense to wait, I want to make sure you understand the math.

Let’s assume you are buying a $400k home and putting down 5%. This means your mortgage will be $380k. While we all expect rates to drop next year, we don’t know when and by how much. Let’s just assume rates drop 1% sometime next year. In this scenario, you will be paying an extra $3800 a year in interest if you buy now vs wait.

Now let’s assume you decide to wait, and property values appreciate by 5% over the next year. Due to supply and demand, I think it will be higher, but let’s use this number. If you wait until next year, a $400k home today will sell for $420k next year. So, the cost is $20k in appreciation vs $3800 in higher cost due to interest rate. That alone is compelling, but my bigger concern is when rates drop, we are going to have a lot more buyers enter the market and end up in a similar situation we saw during COVID. There will be 10 – 20 offers on most homes, so you will have to pay over list and have super short closing timelines and contingencies. Ask anyone who bought a home when rates were at all-time lows, and they will tell you how stressful this is.

Long story short, if you are in a position where you need to move in the next 2 years don’t let the interest rates alone deter you from buying. You should look at your budget and determine the most cash you can bring to closing and your maximum payment within your budget if you found the perfect home. Then speak to a local lender and let them help you figure out the home you qualify for based on this and connect with a realtor to see what homes meet your criteria.

Weekly Newsletter

Stewart Sadler

Managing Partner

Cornerstone Mortgage Group

Georgia Residential Mortgage Licensee: 21412 • Company NMLS: 147913 • Individual NMLS: 147938

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