In 1998, I purchased my very first home with an interest rate just over 7% and I was thrilled. It is a 2-unit, I still have it as an investment, and I refinanced just this past week to an non-owner-occupant rate of 4.5%. Being a numbers guy, I calculated that with no re-fis, I would have paid $96,353 in interest until now. If I’d had an original rate like I received this week, my to-date interest would have been $58,377. That’s a difference of $38 Grand!
When I think about it, it is astounding how great the buying climate is today for buyers. You’ve heard that home prices are at a long-time low, but money is also very cheap. This is a wicked combination! I’m focusing on interest rates only for this post. Here is a chart of interest rates, from when I personally started purchasing until now:
Bringing it Home
What does this mean for you, a buyer in today’s market? Here’s an example:
You qualify now for a $100,000 mortgage. All factors the same, we warp you back to 1998 with 7.1% interest rates. You are now qualified for a $77,000 purchase.
Lets modernize this. Say you qualify in Fall 2011 for a $100,000 mortgage at 4% interest. You wait awhile and interest rates go back up to 5.85%, a rate we saw a couple of years ago. You are now qualified for a purchase price of just over $85,000 with the same down payment and loan terms.
Lets flip it around:
You purchase a $100,000 home and put $3,000 down. Here’s how much interest you pay over the life of the 30 year loan: