When to Buy – Price vs. Interest Rate

As of the end of June 2008, mortgage loan interest rates hit their lows during this most recent economic cycle and have started to climb upward. As the economy recovers, the Fed will have to boost interest rates to prevention inflation and strengthen the dollar. Consider the cost of waiting for real estate prices to hit bottom while interest rates are headed back up. Unless you are an all cash buyer, you will need financing to purchase your next home or investment property. If you are planning to hold your property for 4-5 years or more, lower interest rates now will serve you better in the long run than trying to guess when real estate prices have hit bottom.

Consider this scenario for a $500,000 purchase with a 20% down payment ($100K):

Loan amount	5 years interest at 6%	5 years interest at 7%	5 years interest at 8%
$400,000	$120,000	$140,000	$160,000

Increased interest payments over 5 years is $20,000-$40,000

As a comparison, renting a home at $2,000/mo. is $24,000/yr. (building someone else’s equity!)


Additional financial benefits

	1 year	5 years
Possible depreciation*	$15,000	$75,000
Paid down loan principal	$4,778	$23,890
Possible tax savings**	$4,880	$24,400
Interest rate differential 6% vs. 7%	$4,000	$20,000
TOTAL	$28,658	$143,290

* Estimate only. Actual appreciation or depreciation is impossible to project
** Estimate only. Check with your accountant as to the tax advantages of owning real estate

The greatest benefit of all when making a sound purchase, is the appreciation in value over time!


July 2008

Larry Barton, RA, CENTURY 21 All Islands Kauai
P.O. Box 223700, Princeville, HI 96722
(808) 639-7532 Cell   /   (808) 240-2417 Direct line   /   (808) 826-9884 Fax   /   Email Larry