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FRONT PORCH

Buy Now and Avoid Rising Mortgage Interest Rates
Tuesday, March 13, 2018  |  Homes

If you had to choose, which would you rather do: Pay more for a new home, or settle for less of a home? With interest rates going up, this is the choice you’ll have to make if you don’t buy soon. Because rising rates mean bigger payments.

Have you been thinking of purchasing a new home? If you don’t want to pay more, or buy less of a house, it’s time to make your move.

Handing the Keys to the Homebuyers

Let’s use the Smiths as an illustration:
Say Mr. and Mrs. Smith want to buy a house on the market for $364,000, the average price for a new home right now. They can pay 10% down payment, so their loan would be for $327,600.

At an example interest rate of 4.5%, the Smith’s interest and principal would be $1,659.60, and that doesn’t include the cost of taxes, insurance, HOA and other expenses. Just a 0.5%, or one-half of one percent, increase in the interest rate would mean having to add about $100 to their monthly mortgage payment.

In other words, if the Smiths buy the new home they want for $364,000 with 10% down, they’ll have to pay about $100 more every month with a .5% increase in interest rates.

But maybe the Smiths don’t want to pay more. To make that possible, they’ll have to borrow $18,400 less. Factoring in the 10% down payment, that means a $343,600 sale price rather than the original $354,000. That’s $20,400 less in the price of the home.

To stick to a smaller loan amount, the Smiths will have to buy less of a house than the one they want. With an average price $168 per square foot, the $20,400 less in home price represents 121.4 square feet less of a home. Depending on the market, that would be about the size of a guest room.

The Smiths could avoid this problem by making their purchase before interest rates go up, which is expected to happen soon.

The moral of the story is: Buy now and avoid higher costs or having to settle for less of a house.

If paying less for a new home sounds good to you, purchase now and save. Explore your options today by contacting Neal Communities. We can help you maximize your budget and get you into the new home that you desire.

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