Thursday, June 4, 2009

Home prices + Interest rates = Best deal

If you've been watching home prices in West Seattle, you've probably noticed that prices on the desirable homes (i.e. not Short Sales and/or foreclosures) have stabilized in recent weeks. In fact, we are once again starting to see homes sell in the first two weeks on the market and sometimes with multiple offers. I predict that home prices will remain fairly steady until at least the end of the year, and then start to slowly increase again. So if you've been waiting for the market to hit bottom, I'm going to go out on a limb and say, don't wait much longer; we are probably there. Only time will tell if I'm right.

But the price you pay for a home is only one source of potential savings. The other is the interest rate you pay for your home loan. Again, if you've been paying attention, you know that the mortgage loan interest rates have started to sneak back up. For months now, they have been just under 5%, and it's been easy to get complacent, thinking they would stay there. Now they are inching toward 5.5%. Doesn't sound like much of a difference, but here's an example to put it in perspective.

$300,000 home (purchase price)
$10,500 downpayment (3.5%)
30 yr/fixed rate
$1,510 Monthly mortgage payment at 4.75%
$1,643 Monthly mortgage payment at 5.5%

Now take that difference of $133/mo. and multiply it by 12 months. That's a difference of $1,596 a year. Multiply that by 30 years, and you see that the three-quarter point difference in interest rate costs you $47,880 over the life of the loan!!

So the trick to reaping the most financial advantage when buying a home is to strike when BOTH home prices AND interest rates are at their lowest points.

Questions or comments? Give me a call at 206-708-9800, or comment on this post.

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