Should you hold off buying a home until the market interest rates improve?

Generally speaking, buyers should not hold off buying until the general market interest rates improve to whatever rate they are hoping to receive. The first reason why I say this is because predicting when and if interest rates will increase or decrease is virtually impossible to do. While some people may be able to pick up on trends based on years of data, the market is capable of going in any direction, normally slowly. Therefore, if you are waiting for the rates to get better, you might be waiting a long time. Second, if you can afford the current rate, why not lock that in at a fixed rate knowing that whatever the market does, your mortgage payment will be the same for the life of the loan. If the rates end up getting better while you are paying your mortgage, you always have the option of refinancing and locking in that better rate. In the meantime, you are building up equity and know your landlord can’t raise the monthly rent amount.

To get you a better idea of the difference between rates, this example is based off a loan of $150,000, 30 year mortgage. The interest rate used will be 3.5%, 4.0%, and 4.5%. The 4.0% and 4.5% will be compared to the 3.5% interest rate. The graph below only shows the mortgage payment. It does not include anything else such as Homeowners Insurance, Taxes, Mortgage Insurance (MIP), etc…

Based on the monthly difference amount of the mortgage payment, 3.5% compared to 4.0% is only $42.55 less. While that can definitely be an incentive to take out a loan when you have a higher credit score to reduce your interest rate, it isn’t necessarily a good enough reason to not buy at all, especially if you have a great credit score and that’s just what the best market rate is. Now, if you could get a full 1.0% better rate by having a better credit score or other factor, that is when it can save you a lot of money of $86.46 per month and $31,125.60 for the life of the loan. But like I said, rates are unpredictable and its best to buy when you can afford it, regardless of the market rate and then refinancing down the line if a better rate becomes available. Just make sure your credit score is where it needs to be when the market rates are lower so you are prepared.

So if you plan on waiting to buy a home to get a better interest rate, it should be because you are in the process of improving your credit score to get the best available interest rate, not waiting for the general market rates to get better.