With high home prices and increasing home mortgage rates, is it better to wait to buy and hope that home prices will fall, or buy now because mortgage rates are still low and but are predicted to go up. There are some unknowns – will prices continue to go up because of low inventory and high demand or have prices peaked and will they begin to soften over the winter and into 2019 when the new tax changes hit middle and upper income New Yorkers’ pockets.
Depending on which scenario you buy into, it appears that buying now may be a better strategy than waiting, because the mortgage rate increase over time would amount to paying higher dollars overall in interest than you would save even if there was a decline in prices.
An example with a set of assumptions makes it easier to see. For the statisticians among my readers, I’m keeping this simple.
Assumption: Purchase a home for $500,000 with a $400,000 30-year fixed rate mortgage at 4.5% today(current rates) versus purchasing a home next year with a 5% price increase and a 5% mortgage interest rate (predicted rate increase.)
The monthly payment is $2,027 at 4.5% on $500,000 purchase with 20% down, versus $2,255 at 5% on $525,000 or $228 more each month. The total interest you would pay for the 4.5% loan is $329,600 and for the 5% loan $391,680 - $62,080 more interest over the 30-years, plus $25,000 more in purchase price. If prices drop 5%, the interest paid would still be $25,000 more over the life of the loan.
Without a crystal ball, we don’t know exactly what rates will be next year, but they certainly will not be lower. We don’t know what prices will be next year, they may continue to rise, a likely scenario, but perhaps modestly. One thing is clear - rising interest rates will impact your overall cost the longer you wait to buy.
If you’re planning to buy a home on the
Whether you are buying or selling the team at Beninati Associates has the experience and expertise to help you. Call us at 631 765 5333 or visit our office at the corner of Horton’s Lane and