If you purchase a home today and finance a $500,000 mortgage with a 30 year, fixed loan a 5.75%, the principal and interest payment would be about $2,917,86 per month.
If you wait to purchase, interest rates will most likely rise above today’s historically low rates. For example, under the same $500,000 mortgage referenced above with and interest rate of 7.25%, the principal and interest payment would rise to about $3,410.88 per month.
The difference between these two loans is $493.02 per month. Over the life of the loan, you would be paying an extra $177,486 in interest on the same mortgage amount.
Using the same above example, what would happen if the home market softened to the extent that you could purchase the same home and only need to finance $450,000 at 7.25%? The principle and interest payment would be $3,069,79 – a monthly payment still higher than if you purchased a more expensive home at today’s low rates or $54,695 more over the life of the loan.
Tax Savings
With the $500,000, 5.75% loan above, the interest paid on average over the life of the loan is $18,327 per year. If you are in a 35% tax bracket, your Federal tax savings from interest would be 6,415 per year. If your state?DC tax bracket is 10% that would be a n additional savings of $1,832 per year for a total tax savings of $8,247 per year or $687 per month.
Equity Build-Up
In the unlikely event that the house you finance for $500,000 today does not appreciate over the next 30 years, you would still obtain a significant amount of equity build-up with each mortgage payment. On average over the life of a $500,00, 30 year fully amortized loan, the equity build-up equates to $16,666 per year or $1,389 per month.
With the combined total from tax saving of $687 plus the equity build-up of $1,389 per month, you are losing approximately $2,076 per month by doing nothing.
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