As a Buyer, it is very important to understand the difference between price and cost as it relates to a Real Estate transaction. The price of a home is the amount it is sold for and if there is not a loan involved the price and cost will be the same. However, if you will be securing a loan to purchase the property, the actual cost of the home may vary greatly.
Let’s assume you are going to buy a $200,000 condo with 10% down and a 30 year fixed interest rate of 5%. In this situation you would be putting $20,000 down, receiving a $180,000 loan and would have a monthly principal and interest payment of $966.28. If you were to stay in the home for ten years, the total principal and interest payments would add up to $115,953.60.
Now, let’s assume that you wait until interest rates go up and purchase the same condo, for the same price, but you have a 6% interest rate on your loan. In this situation, you would still be putting $20,000 down and securing a $180,000 loan but, your monthly principal and interest payment would rise to $1,079.19. Over the course of ten years this principal and interest payment would add up to $129,502.80.
It is important to understand that both of these scenarios are assuming the same condo at the same price. However, by raising the interest rate in the second scenario by just 1%, the cost of the home over the next ten years goes up by $13,549.20!!!
All the best,
Tyler MacGuire e-PRO®, SFR
Broker Associate
Omni Real Estate Company
Email: tylermacguire@hotmail.com
“Your Guide to Summit County Real Estate”
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