It seems like every week there is an announcement that home mortgage rates are at an “all-time low”, but this weekly headline is starting to get a little stale for most home buyers who are locking-in the mortgages as late as possible before going to closing. The “rate float option” gives home buyers the option of risking today’s low rate with the expectation that they will lock-in at a lower rate in the future.
This isn’t about mortgage rates
Well that is almost true, because it is important to point out that we are looking at financing a long-term “investment”. Your mortgage is a debt and the interest that you pay is an annual tax deduction.
If you are looking to buy a home then you really need to examine how long you will live there, or what your life will look like in five or ten years? Yes, this is time for long-term planning, to think big, and to consider a house that you will still fit in ten years from now. With rates this low, you are able to afford a better house than you would have been able to buy two years ago
“… own the best house you can afford” – Life’s Little Instruction Book
You are probably a wiz at this by now, but let’s assume you are getting a mortgage for $417,000 on a cute Vienna VA house and hope to lock in a 30-year rate, do you know how much the interest payment will be every month?
Interest Rate x Loan Amount = Annual interest ÷ 12 = Your Monthly Interest
4% x $417,000 = $16,680 ÷ 12 = $1,390 a month in interest
4.5% x $417,000 = $18,765 ÷ 12 = $1,563 a month in interest
5% x $417,000 = $20,850 ÷ 12 = $1,737 a month in interest
6% x $417,000 = $25,020 ÷ 12 = $2,085 a month in interest
What I am suggesting here is that you buy a home for a life that is bigger than your life is today because long-term money is so cheap. Yes, I am suggesting skipping that starter home. These low rates should really make you consider buying as big a home as you can afford keeping in mind your future needs and quality of life.
You may never move again
- Write down where you see yourself in 2020
- Take a look at local communities, any future plans?
- Bike Trails, Schools, Restaurants, Community Events, Employers
- Are there airports, trains, museums, local history
- If you had to move, how active is the real estate market?
- You: Mortgage rates fall to another record low (washingtonpost.com)
- UPDATE 1-U.S. mortgage rates at new record lows-Freddie Mac (reuters.com)
- U.S. 30-year mortgage rates fell in week – Zillow (reuters.com)