{"id":2501,"date":"2022-09-28T09:12:14","date_gmt":"2022-09-28T14:12:14","guid":{"rendered":"http:\/\/heathertankersley.com\/blog\/?p=2501"},"modified":"2022-09-28T09:12:16","modified_gmt":"2022-09-28T14:12:16","slug":"mortgage-rate-vs-purchase-price%ef%bf%bc","status":"publish","type":"post","link":"http:\/\/heathertankersley.com\/blog\/mortgage-rate-vs-purchase-price%ef%bf%bc\/","title":{"rendered":"Mortgage Rate vs. Purchase Price\ufffc"},"content":{"rendered":"\n

For the past few months, one of the \u201cstrategies\u201d we\u2019ve been using is to \u201cbuy down\u201d the rate. In other words, pay $X amount up front to bring the long-term rate down by Y%.<\/p>\n\n\n\n

For example*, a lender may offer the borrower the ability to reduce their interest rate by .25% in exchange for a point, or 1% of the loan amount. So, if a borrower was getting a mortgage for $500,000 with an interest rate of 6.5%, paying $5000 could reduce their interest rate by .25% to 6.25%, or a difference of $81\/month.  If you were to hold that loan for a full 30 years, you\u2019d be saving $29,160 over the life of the loan.<\/p>\n\n\n\n

HOWEVER, to recoup that $5000, it would take roughly 5 years!<\/p>\n\n\n\n

For the past 3-6 months, many sellers have been using this as a tool to help byers offset the rising rates, but at this point\u2026 consider either using those incentives to cover your closing costs OR to simply reduce the purchase price.<\/p>\n\n\n\n

The Benefit:<\/strong> A lower cost basis in the property, a lower purchase price (which sets the tax basis lower), and a lower loan balance when the time comes to refinance at a lower rate.<\/p>\n\n\n\n

I know that uncertainty of the general market and economy can be a bit scary when it comes to purchasing a home, but a \u201cstable\u201d market and a \u201cbuyers\u201d market really ARE the best times to buy real estate!<\/p>\n\n\n\n

If you think about November 2020 through May 2022, there was a frenzy where people were paying WAY over asking price, waiving appraisals, paying title fees, and more.<\/p>\n\n\n\n

Fast-forward to Fall 2022, and we\u2019re seeing a more NORMAL market.<\/p>\n\n\n\n

Let\u2019s use that example above and we\u2019ll say it\u2019s a $625,000 list price with a $500,000 loan\u2026<\/p>\n\n\n

\n
\"\"<\/figure><\/div>\n\n\n

During the frenzy:<\/span><\/strong>
Purchase price: $687,500 (10% OVER list\/appraisal)
Title fees: $3900
Cash for mortgage\/title: $191,000
Loan amount: $500,000
Interest rate: 3.5%
Payment: $2245 (principle and interest only)
Tax rate: 2.7% ~ $18,549 per year<\/p>\n\n\n\n

<\/p>\n\n\n\n

Now:<\/span><\/strong>
Purchase price: $600,000 (room to negotiate DOWN)
Title fees: Paid by seller
Cash for mortgage\/title: $120,000
Loan amount: $480,000
Interest rate: 6.25%
Payment: $2955 (principle and interest only)
Tax rate: 2.7% ~ $16,200 per year<\/p>\n\n\n\n

In the second example, you keep $70,000 MORE in the bank AND your tax bill is $2300 less per year, almost $200\/month in additional savings to help offset the higher mortgage rate.<\/strong><\/p>\n\n\n\n

If you used all of the money required in scenario #1, you would reduce the mortgage amount to $410,000 and your payments would be $2524\/month, a difference of just $279\/month. Factor in the taxes and it\u2019s basically a difference of $79\/month\u2026<\/p>\n\n\n\n

YES, the payment has DEFINITELY increased in both scenarios\u2026 But let\u2019s walk this out some more.<\/p>\n\n\n

\n
\"\"<\/figure><\/div>\n\n\n

All experts point to rates dropping again in the next 1 to 2 years, so if you turn around and refinance your $410,000 at, say 4.5%, your payments then drop to $2,077\/month, but you\u2019ve built equity AND have a lower tax liability.<\/p>\n\n\n\n

If all this makes your head spin, I totally get it \ud83d\ude42<\/p>\n\n\n\n

Give me a call and I can break it down a little more closely on a per property basis and\/or loop my go-to lender in so we can run actual scenarios for you!<\/p>\n\n\n\n

<\/p>\n\n\n\n

<\/p>\n\n\n\n

* The above examples are for illustrative purposes only and do not include all costs, expenses etc. such as closing costs, taxes, insurance, etc. Please consult with a licensed mortgage professional for specific rates for your unique situation.<\/p>\n","protected":false},"excerpt":{"rendered":"

For the past few months, one of the \u201cstrategies\u201d we\u2019ve been using is to \u201cbuy down\u201d the rate. 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