Purchasing now rather than waiting could lead to savings exceeding $75,000!

Get ready for some Realtor math as the school season approaches! 

Opting to purchase a $500,000 home now rather than waiting for two years could lead to savings exceeding $75,000!

A notable number of potential home buyers are postponing their property purchases due to prevailing interest rates. The decision between buying now or waiting could result in substantial savings exceeding $75,000. Curious about the mechanics behind this? Let's dive in.

When you make a home purchase, you promptly begin chipping away at the principal loan amount, initiating equity growth, and bidding farewell to rental payments. This translates to immediate positive financial impact. Conversely, waiting two years until interest rates drop to 5 percent paints a different picture. A home initially valued at $500,000 would appreciate to around $546,363, and in those two years, you'd have spent over $48,000 on rent. The total contrast between purchasing now and waiting is a substantial $76,177.23.

At present, your monthly payment stands at $3223, a figure that would dwindle to $2,498 if you refinance in 2025. Opting to wait until 2025 to buy would result in a monthly payment of $2,786. Now, consider a Strategic Move: maintaining a monthly payment of $3223 in either scenario. By diligently reducing the principal amount, you'd save a remarkable $189,694 for a 2023 purchase or $141,496 for a 2025 purchase. As a bonus, your loan could be fully settled by 2041/2046.

While the Strategic Move holds promising potential, it's prudent to consult a financial advisor. Their expertise can guide you on where to invest your extra funds, potentially yielding even greater returns.

The Scenario Used: You have the option to buy a home valued at $500,000 with a 5% down payment. If you choose this path now, you'll secure a fixed-rate mortgage with an interest rate of 7.23%. Alternatively, you could wait and buy a home in 2025 when interest rates are projected to be at 5%.  Based on historical data, the projected home appreciation is set at 3%. However, it's worth highlighting that the recent years have seen notably elevated rates of appreciation, potentially leading to even more substantial savings.  Let's break down the options:

Buy Now Scenario:

• Original Loan Amount: $475,000 (Purchase Price – Down Payment)
• Interest over two years: $79,752.52
• Loan Balance at the end of two years: $465,447
• Refinance Loan Balance of $465,447 at 5% interest in two years
• Total interest paid on the original loan $68,039 + refinanced loan = $434,349.

Wait to Buy Scenario:

• Original Loan Amount: $519,045 (Purchase Price – Down Payment)
• Interest over 30 years = $484,203.
• Rent during two years calculated at $2,000 per month x 24 months = $48,000
• +/- Calculation (Buy Now vs. Wait to Buy): 2023 Total Interest ($502,388.73) - 2025 Total Interest ($484,202.3) = +$18,185.73 Interest 2025 loan would save vs 2023. Subtract the home appreciation ($46,363) and Rent ($48,000).
• Monthly Payment Difference: If you purchased the home in 2023 the Principal and Interest (P&I) would be $3,223, and once refinanced the P&I would be $2,498. The P&I for the loan in 2025 would be $2,786.
• Total difference to buy in 2023 vs wait is $76,177.27, and payment difference is $288/month.

Power Move! For the Best Bang for your Buck, consider purchasing a home in 2023, refinancing in 2025, but continuing to pay the same monthly amount you did in 2023. Applying the additional $750 per month directly to the principal over the term of the loan would save you $189,694 in interest, and the loan would be paid off by 2041.

Being Fair: If you buy in 2025 and pay the P&I of $2,786, plus the amount you would have paid per month in 2023 ($3,223), you would save $141,496 in interest over the life of the loan, and it would be paid off in 2046.

Extra Credit: Take the original amount you would save by purchasing in 2023 ($76,177) and apply the Best Bang for your Buck/Being Fair strategies. The difference in savings would increase from $76,177 to $124,375.

Summary

While the choice of buying now or later ultimately rests on what suits your individual circumstances best, we aim to present information that underscores the potential benefits of purchasing now for a more favorable financial future. Should you have inquiries regarding buying or selling, or if you seek recommendations for our trusted lender partners, please don't hesitate to reach out. You can contact me at 608-669-4226 or email john@integrityhomeswi.com.