Yesterday on the radio show (thank you again Jeff for having me on) I mentioned how home buyers who are waiting to see if San Diego Real Estate prices will drop more  might be missing the boat on the total cost of waiting.  Here is a quick example on how interest rate can affect the total cost of the home more than home value in this market.

Let’s compare a home with a 5% 30 year fixed mortgage and the same property with a 6% mortgage with a 5% reduction in price.   For the example below I used a home priced at $400,000 at 5% interest and the same home at 5% less for the purchase price with the higher rate ( where analysts say rates will be by the end of the year) but the example can be modified for any purchase price and rate range.  As you can see the higher purchase price and loan amount has a LOWER payment by $105 per month. I understand that $105 dollars is not a huge amount of money but it might as well be a million dollars if it puts a buyer over the Debt-To-Income level that is needed to qualify for the loan. 

 In this image you can see that over the life of the loan that $105 per month really adds up to $53,730 in net savings.  Hopefully at this point you can see the value of the savings and please note that this is at 0% interest so if the savings was properly invested or even just put in a savings account it would be much more (due to compound interest).

Here is where the real magic happens!! If that extra $105 dollars a month was put toward the mortgage payment you can see that the mortgage would be paid off in 26.42 years instead of 30. this would result in a total savings over the house at a “LOWER” price of $95,766.

For more information on how to reduce the total cost of a new loan or your existing loan (without a refinance) give me a call at the office @619-285-2921.