Does Waiting for Lower Mortgage Rates Make Sense?

Many renters are waiting for mortgage rates to fall before purchasing a home. However, if home values rise while you wait for rates to drop, you may not save as much on your payment as you think. Plus, you could end up spending a lot of money on rent!

Let’s explore some examples of initial principal and interest payments on a hypothetical 30-year fixed-rate mortgage of $400,000 compared to a payment one year later after rates have dropped and home values have risen.

Example 1: One-Point Drop in Rates with 5% Appreciation

1. Loan Amount if Bought Now: $400,000

2. Interest Rate: 6.50%

3. Monthly Principal & Interest Payment: $2,528.27

Now, let’s assume you wait one year, and the home appreciates by 5%:

1. New Loan Amount: $420,000

2. New Interest Rate (after a 1% drop): 5.50%

3. New Monthly Principal & Interest Payment: $2,384.71

4. Monthly Savings: $143.56

If you pay $2,000 in rent for the 12 months you wait, it would take 167.2 months (or 13.93 years) of payment savings to recoup your rent cost. Instead of paying the extra $20,000 at sale, you would have earned an average of $1,667 in equity each month during that time.

Example 2: Two-Point Drop in Rates with 10% Appreciation

1. Loan Amount if Bought Now: $400,000

2. Interest Rate: 6.50%

3. Monthly Principal & Interest Payment: $2,528.27

Assuming you wait one year again, and the home appreciates by 10%:

1. New Loan Amount: $440,000

2. New Interest Rate (after a 2% drop): 4.50%

3. New Monthly Principal & Interest Payment: $2,229.42

4. Monthly Savings: $298.86

In this scenario, waiting would also cost you. It would take 80.3 months (or 6.69 years) of savings to recoup your rent costs. Instead of paying the extra $40,000 at sale, you could have been earning an average of $3,333 in equity per month.

The Bottom Line

There’s no guarantee that home values will rise or that mortgage rates will drop. However, if you have the ability to buy now, waiting for a better rate could end up costing you more in the long run.

If you're considering your options, don't hesitate to reach out. The Greenway Mortgage team is here to help you navigate this decision!

Contact us today at 888-616-9885 or click here.