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The Cost of a Mortgage and Ability to Buy

February 22, 2012

I have people ask me whether or not is a good time to buy a home.  What I have been talking about lately is the cost of owning a home and how interest effects payments and total money out of pocket.  Mortgages are fairly expensive.  You are spreading out the cost of a house over 30 years and the resulting amount you pay to the bank is significant.  But right now with interest rates the way they are you could be costing yourself thousands by waiting to buy.

Let’s look at an example of a mortgage.  If you were to buy a $200,000 home right now you would be paying $926 dollars in principle and interest payments for a 30-year loan at 3.75%.  Total amount you would pay back to the bank would be the $200,000 owed and another $133,443 dollars in interest.  Now say you wait until next year and the rates go up to 5.5%.  Now you are paying $1,135 dollars in principle and interest payments for a 30-year loan.  Total amount you would pay back to the bank would be the $200,000 owed and another $208,808 dollars in interest.  That is an extra $75,365 dollars!!! Your interest went up less than 2%.

The other thing to consider is how much more of a house you can buy with the extra payment.  Looking at the example above; if you take the payment of $926 dollars on 5.5% interest for 30 years you are only able to buy a $163,088 house!!  By buying when interest rates are low you can buy a better house with less money out of your pocket in the long run.  The other factor to consider is that prices are still just recovering now so you are able to get houses on sale and deals that may not be here a year from now.

Happy house hunting!

 

Craig Soelberg

Sheila Smith Real Estate Group

RE/MAX Capital City

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