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Will Waiting Another Year to Buy Really Pay Off?

Posted by AJ Hazzi on Wednesday, August 1st, 2018 at 8:55am.

Should those interested in buying a new home wait until prices drop and interest rates rise? Let’s do some quick math to see how the benefits of purchasing today would compare to waiting another 12 months.

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I’ve been doing a deep dive into recent mortgage calculations lately, and the information I’ve found could help answer a question that has been on many people’s minds lately: Should buyers make their move now or wait?

To get to the bottom of this question, let’s do some quick math. Imagine you’re purchasing a $500,000 home with a 5% down payment, which, in this case, would be $25,000.

Assuming your interest rate is at 3.49%, your monthly mortgage payment in this scenario would be $2,369. Of course, this calculation would only be correct assuming you made your home purchase now.

If you waited another six to 12 months, the math would come out a little differently. Predictions indicate that interest rates are going to rise another 50 basis points, and some believe this might soften the market. But what effect would this actually have on your monthly payment, using the same equation we used before? Let’s find out.

For our second scenario, let’s imagine you’re looking at the exact same property as in our first scenario one year from now. By this point, the price has dropped to $475,000, and a 5% down payment at this price would be $23,750. Yet with an interest rate of 3.99%, your monthly mortgage payment would come out at $2,371. The increase from what we saw in our first scenario is negligible based on monthly payment alone, but the difference these two interest rates make in another area is pretty amazing.

"Mathematically speaking, it does not make sense to wait."

In our first scenario, the amount of principal you pay in one year would be $12,162. In the second scenario, though, you would only pay $10,791 in principal each year.

But which scenario is truly better in the long run? Well, if you fast-forward five years from the time you purchase the home in each example, you would have $90,000 in equity in scenario one and just over $80,000 in scenario two. This constitutes a significant difference in how each investment pays off over time.

The bottom line is this: Mathematically speaking, it does not make sense to wait. The best thing you can do right now is to take advantage of our current market. It’s a wonderful time to be a buyer.

If you have any other questions or would like more information, feel free to give me a call or send me an email. I look forward to hearing from you soon.

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