Interest Rates May Be The Best Reason To Buy

As realtors, we are always telling people why “today or now is a good time to buy” and many times we have good reason for that. The prices are down and there are a number of foreclosures available, buyer incentives, etc, etc. Maybe the best reason of all right now to buy is the interest rate.

I know mortgage lenders are always talking about this and advertising this, but we hear it so much that we forget to pay attention to it. If you really stop and think about it, interest rates may be the biggest influence on whether we can buy or not. Let’s face it, the vast majority of the population buy based on what they can afford in a monthly mortgage payment. Nothing affects that more or greater than the interest rate. Let’s take a look at a snap shot of a few figures to see the real impact when interest rates rise and what that does to your monthly payments.

According to Metrolist, at the end of 2009 the average price for a single family home was $281K. For this example, let’s call it an even $280,000 and let’s also base all of our calculations on a 30-year-fixed. We’ll take a look at a 5% loan, a 6%, and a 7%. We are also all in agreement that it’s unlikely that interest rates will go lower and the reality is that they are only going high from here.

  1. $280,000 at 5% = 1,503 P&I
  2. $280,000 at 6% = 1,678 P&I
  3. $280,000 at 7% = 1,862 P&I

Just the jump from 5% to 6% almost added $200 a month to your payment and we still haven’t added in taxes and insurance yet. If you have to add mortgage insurance, you could be easily looking at $2000 a month. It adds up quickly and that’s why interest rate is such an important factor. It’s also the main reason why I tell people who are on the fence about buying now or waiting not to wait any longer.

Dan Polimino is a Realtor with Fuller Sotheby’s International Realty. He can be reached at DPolimino@fullerproperties.com and www.coloradodreamhouse.com/denverpost