The Cost of Waiting to Buy
Nichole Story
The real estate market in California keeps getting stronger, making it a smart time to buy a new home. In fact, many economists agree that property values in Orange County will increase anywhere from 6 to 10 percent in 2016. This is great news for homeowners because their equity will continue to increase, but what does it mean for buyers? It’s simple: The longer you wait to buy, the more money it will cost you.
Interest Rate Cost Comparisons
Homebuyers in California and the rest of the country have benefitted from low interest rates over the last few years. And while rates are still close to their all-time lows, we are beginning to see slight increases as we get closer to prime home-buying season. Many prospective buyers can currently lock in an interest rate around 3.5 percent, but what if the rate creeps up to 4.5 percent? Compared to historic rates, this might still seem low, but you’d be surprised at what an interest rate increase means for your monthly mortgage payment. Let’s take a look at a few different scenarios, which have been run through an online mortgage calculator:
Scenario 1 – $500,000 mortgage
If you have a 30-year fixed mortgage in the amount of $500,000, and the interest rate is 3.5%, your monthly mortgage payment would be $2,245.
But if the interest rate goes up to 4.5%, then the monthly payment would be $2,533.
The extra annual cost to you at the 4.5% interest rate: $3,456 ($2,533 - $2,245 = $288 per month x 12 months = $3,456).
Scenario 2 – $1,000,000 mortgage
If you have a 30-year fixed mortgage in the amount of $1,000,000, and the interest rate is 3.5%, your monthly mortgage payment would be $4,490.
If the interest rate goes up to 4.5%, your mortgage payment would go up to $5,067 a month.
The extra annual cost to you at the 4.5% interest rate: $6,924 ($5,067 - $4,490 = $577 per month x 12 months = $6,924).
Scenario 3 – $1,500,000 mortgage
If you have a 30-year fixed mortgage in the amount of $1,500,000, and the interest rate is 3.5%, your monthly mortgage payment would be $6,736.
If the interest rate goes up to 4.5%, your mortgage payment would go up to $7,600 a month.
The extra annual cost to you at the 4.5% interest rate: $10,368 ($7,600 - $6,736 = $864 per month x 12 months = $10,368).
When was the last time you gave away $10,000 for no reason? Hopefully you never have, and there’s no reason to start giving it to the bank each year either. Plus, the longer you wait as property values go up, the less house you’ll be able to afford. That is, you’ll get less square footage and fewer amenities for the same price tag.
Dramatic Increases in Rental Costs
Orange County’s skyrocketing rental prices are also enticing people to choose purchasing a home over entering into a lease. The average monthly rent is $1,848, which is nearly a 7 percent increase over last year, making O.C. one of the most expensive markets in the nation. Compounded with typical required deposits and fees, you could potentially pay an amount close to a down payment without gaining any of the equity or other benefits of owning a home.
The Perks of Home Ownership
Not only is home ownership a smart investment due to property values and low interest rates, it’s also a savvy move for tax reasons. Home mortgage interest rates are tax deductible, which can really benefit your bottom line come April 15th. Need even more reasons to look into purchasing a home? Check out my post on why you should buy now to win big. [insert link to last blog post]
There are many variables when it comes to real estate, but one thing is for certain: It will cost you if you wait to buy Orange County real estate. Contact my today and lets talk about the best strategy to help you jump into the OC market so you can begin to watch your equity grow.
Nichole Story is an Orange County Real Estate expert. She can be reached at (949)375-9981