When interest rates are constantly changing, it can be compelling to try to “chase” the best rate. But waiting for just the right interest rate to act can often result in unexpected added expense. The chart below, from Keeping Current Matters, shows how even a small change in interest rates can impact your monthly payment. This chart is based on national averages for home prices (around $250K), so for the Northern Virginia area, where home prices are closer to $500K, you would need to double the expected impact to the monthly payment.
While the impact of the interest rate may seem small when broken out on a monthly basis, keep in mind that the chart above also does not include taxes, insurance, and private mortgage insurance. So once you add those to your monthly payment, you can see the why it may be advantageous to take advantage of low rates now, than to wait, hoping the rates will go lower.
Increasing your monthly payment has a chilling effect on your costs over time. For instance, a $500K home with 20% down (so a mortgage of $400K), the sum of 30 years of monthly Principle & Interest payments at 3.75% interest would be $666,720. The same home, financed at a 4.3% interest rate, will cost you $712,444 over the life of the loan. So that small change in interest rates will cost a borrower $45,720 in extra interest over 30 years.
Another consideration is the fact that home values are constantly rising in the Northern Virginia area. Homes in your price range may cost $15K-$50K more in a year, which just adds insult to injury. The combination of higher housing costs and higher interest rates could mean you will spend $100K or more over the life of the mortgage loan, simply by waiting a year or more to purchase a home.
Mortgage interest rates have remained unexpectedly low despite Fed tightening earlier in the year. However, we have no idea how long interest rates will stay low. Waiting could hit your pocketbook more deeply than you expect, once rates start rising again. If you are still uncertain, many mortgage lenders offer the ability to adjust your rate after you apply, should rates fall before you close on your loan. Talk to your lender to see what’s possible.
If you are shopping for a new home, give us call! Whether you are looking to buy or sell a home in Northern Virginia, we are always here to help with all your real estate needs! If you are unsure of your home’s value or if you are thinking about buying or selling, contact Jason at 703-298-7037 or Jason@JasonAndBonnie.com.