At the end of April (when the tax credits expired) the interest rate was hovering around 6%.you would have spent much more than the $8000 Tax Credit for 1st-Time Homebuyers – many times over!
My friend Rob Levy, a top-producing agent from Portland, OR (and a fellow member of the CyberProfessionals) shared a great article he wrote on the impact of lower interest rates on the housing market. I liked his approach and it prompted me to write this post. I added and changed some information and details to reflect our housing market on Long Island. The examples given do not include property taxes – only principal and interest. You would need to add the monthly cost of property taxes for any particular home to the monthly principal and interest to know what your total monthly payment would be.
Is now a good time to buy a home? Even if prices drop some more? Consider this – If you buy a home for $400,000, and for this illustration obtained a $400,000 mortgage for the property – and that home drops 10% the next year – you lost $40,000. Easy enough to figure. But if the mortgage you obtain today cost 4.25% and the one available in a year cost 6 % – then the difference in the total cost of that home is a lot less if you purchase a home now. $400,000 @ 4.25% = Monthly Payment of $1,967.76 vs. $400,000 @6% = monthly payment of $2,398.20 – for a difference of $430.44 – Each and Every Month! For a 30-year mortgage that difference in the finance charge adds up to $154,960.74. And one thing is a “given” – when the economy improves, interest rates will rise.
And what about the “Housing Tax Credits” which expired April 30? Did you mess up by not taking advantage of that opportunity? Not really. About that time in April interest rates were hovering around 6%. The Cost of the Home – even with the tax credits – would have cost more in April than today with the historically low interest rates available.
Despite what you’ve heard, homes are selling – and this is a great time to buy a home. The bottom line is “How much is it going to COST to Pay for the home?” It’s not just the purchase price that has to be considered – but the total cost of paying for it, and for most buyers that means the cost of financing a home. Check out the financial calculators on my website to do your own estimates.