Buy More House Using Rising Interest Rates to Your Advantage
by Murray Balkcom
Let me first clearly state that I’m not a mortgage broker or a banker. I’m just a thinker with access a mortgage calculator, like the one found at the bottom of Explore30A.com.
Lately, I’ve heard of several real estate transactions which didn’t come to contract, as the buyers and sellers were not able to agree on the contract price. We are talking about $1 million homes, where the buyer and seller were stuck at less than $25,000 apart on their prices.
When that happens, and buyers wait until they find another home, there is something quietly happening in the background. Lately, we’ve seen interest rates ticking upward. Buyers may ask, what’s that got to do with me? I’m going to share something of value to the buyers who are too focused on “winning” at negotiating, and not focused on the big picture.
According to Kiplinger.com, “By the end of 2017, expect the average 30-year fixed mortgage rate to rise to 4.6%, with 15-year fixed mortgage rates at 3.8%.”
Let’s use the example of the $1,000,000 home, since that’s around the average home sale price in the 30A area. With interest rate of 4%, with $200,000 down on a 30-year fixed loan, according to my mortgage calculator (double check using your own), your monthly payment will be just under $3,820. With the same $200,000 down payment and a .25% increase in interest rates, the same $3,820/month payment, will buy you a home with a purchase price of only $976,518. HELLO Buyers! Do I now have your attention? That’s $23,482 less home that you can afford. Why wouldn’t you just be willing to go up in your offer price and get the deal done on the home you like the most. If you wait longer and interest rates continue to rise, you may find yourself being able to afford much less home.
In this example let’s say that during the course of your home search, using the same $200,000 down, if the interest rates go from 4% to 5% (5% rates are still relatively low), keeping your monthly principle and interest payments at $3,820, the amount of home you can buy is only $911,596, (about 9% less). That’s $88,404 more money that you could have been negotiating with, if you look at it purely from a financial perspective. Of course there is no guarantee on interest rates.
So, Buy More House the next time you get to the negotiating table, pull out your mortgage calculator and read what is happening with interest rates, before walking away because you “didn’t win.” Maybe you can still win by giving in a little more on price if you can lock in a lower interest rate. In reality, you may be walking away from a win/win.
Do your own research and think more about finding a better way to save money, rather than walking away from a good buy.
If you would like to talk directly to a lender, let me know and I will connect you with some of the best in our area.