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Good morning!
I wanted to share some insights on a common topic that often comes up with my clients as I love being a resource and helping my clients make informed decisions. This may help you, too.
The Impact of Interest Rates on Buying a Home
Scenario 1: Buying a $1M Home Today
- Interest Rate: 7%
- Down Payment: 20%
- Monthly Payment (PITI: Principal, Interest, Taxes, Insurance): $6,660
Scenario 2: Buying the Same Home at the same price if Rates were lower
- Interest Rate: 6%
- Monthly Payment (PITI: Principal, Interest, Taxes, Insurance): $6,130
** Difference in Monthly Payment:** $530/month decrease
However, consider this:
- Let's assume that the rates will go down to 6% in a year.
- The same home could cost $1.1M or more a year from now (considering a minimum annual house value increase in the Bay Area, coupled with increased competition if/when rates drop).
** New Monthly Payment for $1.1M Home at 6%: $6,743: higher than Scenario 1 for the same house
Key Takeaways
- When you buy now, for the same home, you'll pay less monthly than if you wait for rates to drop and home prices to rise.
- You could also benefit from an increase in home value, potentially gaining $100K (and probably more) in increased value in a year.
Every client and situation is unique, and this may not apply to everyone. If purchasing a home now is a priority and you have the ability to do so, consider this bigger picture when evaluating your options. I’m here to help guide you through the process.
Have a great week!
Basak
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