Middle Class Millionaires

I won’t belabor the point, but I will say that my clients have heard this for years; “Run the numbers, they will tell you what to do”. Still most people are willing to let someone else do their thinking for them. That’s too bad for them, because by not doing their own thinking they may be missing out.

For those who think this is a bad time to buy real estate, before you lose any more opportunities, consider this. If you buy a home for $215,000 with 20% down, you’ll have a mortgage of $172,000. If you get a loan at 5.5%, amortized over 30 years, your monthly payment will be $976.60. If your concern is the monthly payment, remember that when things improve, and they will, interest rates will go higher. So, in a year, even if the price of the home dropped another 10% (unlikely) to $193,500 and things got a little better so mortgage rates inched up to only 6.5% and you used the same down payment of about $43,000, your mortgage would now be $150,500. Your monthly payment would now $951.26, a monthly savings of only $25.34. Over one year this would amount to a $304.08 savings. However, while the $304 savings sounds great, you need to factor in the fact that the interest paid over the first 12 months would be tax deductable, and if you’re in a 35% combined federal and state marginal tax bracket, you would have saved approximately $3,300 in taxes and paid down the mortgage by another $2,300, resulting in a real financial benefit to you of over $5,000.

Here’s another fact to consider: if you buy now at the higher price with the lower interest rate, your total interest paid over a 30 year period would be just over $179,000. If however you wait and if the price of homes were to drop by another 10 %, with the higher interest rate, even with the lower mortgage amount, you will pay almost $192,000 in interest.

So consider whether it is worth it for you to live where you want to live now, even if the market is a little shaky. When you run the numbers you may decide that now really is a pretty good time to buy. Good luck. We’re happy to help.

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