With 30 year fixed rate mortgages hovering around 4.8% near historical lows, it got me thinking this weekend. More than likely, a year from now, mortgage interest rates will be higher than they are today. Many buyers are waiting to see if real estate prices have further to fall. In my comparison, I'll show you why I think the next several months are the best time to buy. For an easier comparison, let's say the current 30 year fixed mortgage is 5%. Let's say you purchase an average home for $400,000 with 20% down. Your loan amount would be $320,000, and your monthly principal & interest payment would be $1,717.83. If you decide to wait a year to purchase and rates were to rise to 6%, that same $320,000 loan would cost you $1,918.56. That's a $200.73 increase, or 11.7%. That's a huge amount! Now interest rates may only rise a half a percent in the next year, and then the increase would be less, but it's still a substantial difference in your monthly payment. If rates only rise to 5.5%, then that same mortgage would cost you $1816.92/month. That's still almost a $100 increase. On the other hand, if you as a buyer successfully negotiate $5,000 off the purchase price, that amounts to a savings of only $22.71/month.
In addition to the above data, we have the $8,000 first time buyer credit which will expire at the end of April 2010. Low interest rates, depressed real estate prices, and an $8,000 first time home buyer credit all combine to make this an ideal time to invest in real estate.