October 18, 2022

Do Interest Rates Even Matter When You’re Buying?

What goes up must come down, right?

Click bait alert.

OF COURSE interest rates matter. The real key to this question is understanding HOW MUCH they matter.

Let’s look at an example.

During the once (and future?) interest rate of 5.5%, borrowing $600K would cost around $3,400 a month.

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In contrast, if you borrow $600K at 7%, your principal and interest will be just under $4,000 a month.

On paper, this means borrowing the same amount of money costs 15% more now than it did a few months ago.

Does this mean you’re now paying 15% more for the exact same thing? Like buying roses on February 14th?

NO, IT DOES NOT!

First, this 15% change only applies to principal and interest. NOT the taxes. So, if the house has $1,300 a month in taxes, it STILL has $1,300 a month in taxes. Including taxes, your payments go from $4,700 to$5,300: just a 13% increase.

Market prices also adjust when interest rates change. Importantly, this doesn’t always mean LISTING prices adjust right away. That can take some time. Previously listed homes don’t change their prices every day. Instead, when you offer on a home, you’ll see sellers being more reasonable in responding and negotiating. This might mean that you pay 10-15% less for a house than you would have 3 months ago. So, while borrowing $600K will certainly cost more now….buying a particular house likely won’t cost more.

Also, it’s important to remember that when interest rates are high, they will (eventually) go back down. When that happens, refinancing is pretty easy. So, when rates go back down to 5.5%, you can SAVE $600 a month. The purchase price (and loan amount!) stay the same, and the payments go down. You’re effectively buying back the house at a lower price.

Utilize this mortgage calculator to run some hypotheticals.

https://greenrivermortgage.com/mortgage-calculator/

If you’re overwhelmed….call me!