There has been this stigma about new families or first-time home buyers getting their first “starter” home. For generations, people have looked for that home as a jump into homeownership. Logic suggests that starting with a smaller home, you can learn how to take care of it, learn what it costs to maintain a home, and experience some of the unexpected costs also. But if you were to look into the future, you may change your mind.
As of March 4, 2021, the average 30-year mortgage rate according to Freddie Mac was 3.02 percent; up .37 percent from the week of January 7th this year. At the same time, in 2020, the rate was 3.29 percent and in 2019, it was 4.41 percent. That is a difference of 28 and 139 basis points.
Even though home prices have increased over the last two years, some people may be able to afford a larger home now with the still historically low rates. The principal and interest payment on a $300,000 mortgage would have been $236 higher two-years ago and $44 higher one-year ago. Today’s low mortgage rates are saving buyers lots of interest especially when you factor in that the average homeowner’s tenure is approximately ten years.
By anticipating what your future needs may be and buying a larger home today. You can lock in today’s lower rates and prices and give yourself room to grow without the expenses of selling, buying, and moving.
Every time you sell and buy a home, there are associated expenses with each side of the transaction. Purchase costs could be 1.5 to 3 percent while sales expenses could easily be 2.5 times that much. These expenses lower the value of your equity.
Instead of looking at the low mortgage rates as generating savings from the lower payment, you might normally have to make, consider it an opportunity to purchase a larger home that will possibly meet your needs for a longer time while eliminating the cost of selling and purchasing in the transition.
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