A Simple Equation for Buying a Home

A lot of people shopping for homes are worried about ‘timing the market’, trying to make sure they are buying at the right time.  Nobody wants to buy a new home and find out in six months that similiar houses are now selling for less.  While buying at the right price is important, it’s not the only factor in determining how much you’ll eventually pay for a home.  Often overlooked in the equation is the interest rate paid on your home loan, which is a much bigger factor in your payment than many people realize.  At last week’s Keller Williams’ Family Reunion in Orlando, FL Gary Keller and the KW Research Team shared a very important equation that all home buyers should know:

A 1% change in interest rates = 10% change in sale price

Wow, that’s a great number to know!  As an example, if you buy a $200,000 home and finance $180,000 at 4% interest you’re monthly payment is $859.35.  If the home were 10% less ($180,000) but the interest rate was 1% higher (5%) the monthly payment is $858.91.  Keep in mind that this payment is only principal and interest and doesn’t include any required tax or insurance escrows. 

So now that we know that the interest rate that we pay is so important that leaves us with another important fact that Gary shared last week:

In our current market, it is 20x more likely that the interest rate will change than the sale price.

This weeks quote on a conventional 30 year fixed rate mortgage is around 3.875%.  So do you think that rate is more likely to go up or go down?  This is the ‘platinum age’ of mortgage rates.  We can pretty safely say that rates cannot go any lower; the bank is never going to pay you to take their money!  If you’ve been on the fence about buying, the exampe we did above should answer a lot of questions for you.  If you have any other questions or want to know about current rates call me at 484-893-1234 or email homes@debandjoe.com.  We’re always here to help!