Many home buyers are skeptical right now. With all the changes in the economy, buyers are predicting home prices to decrease. However, prices are truly a small factor if you are securing a mortgage. Interest rates have been slowly creeping back up. Although, they are still really low- many buyers don't realize the big difference it makes.
For example, in 1992- the average home price was $140,000. Cheap right? Not really because interest rates were an average of 9.75%. This would mean if you bought a home in 1992 you'd pay $140,000 and your mortgage payment would have been $1295.76 (based on 9.75%).
Now... our average home price is $330,000 and the average interest rate today is 2.74%. This would mean if you bought a home today you might pay $330,000 and your mortgage payment would be $1494.04.
Compare the difference. Your mortgage payment increased by $198.28 from 1992. However, over the 5 year term... in 1992 you would have paid $68,566.37 in interest where as today you'd pay $41,065.23 in interest. That's a huge difference.
So let's think if prices went down by $10,000 and interest rates go up from 2.74 to 3.29%.
Today $330,000 with 2.74% : Monthly payment = $1494.04
If prices fall $10,000 but rates go up to 3.29% ($320,000) : Monthly payment = $1508.69
Therefore, it would still cost you more money a month despite the decrease.
Now is a good time to buy before rates go up again. Typically, rates increase in the spring market. The smallest percentage can save you thousands of dollars in the big picture. Also, if prices ever were to decrease we risk a chance of decreasing inventory. Home owners who don't “have” to move will wait until prices increase before listing again. Therefore, there won't be as much to choose from.
So if you are thinking of buying your first home, second home or even an investment property- I want to help you make an educated choice and save money in the long term not just the short term.
Call me today to discuss further or if you are in need of a good mortgage broker - I can recommend the best in Red Deer :)
Your Realtor – Melissa Morin
Century 21 Advantage
***All calculations are approximate and based off 25 year amortization, 5% down payment, today's standard insurance premium.***