Interest rates are a bone of contention in the current housing market. They reached historic lows in the past few years and their rise is causing consternation to buyers and sellers alike.
For example, a $1M loan at 4.25% has a $4919 per month mortgage payment (principle plus interest). That same loan at 7.25% is $6821 per month. Don’t panic. You can buy down the rate for about $5000 per point. Bringing the rate down to 4.25% would cost about $15,000, a substantial amount. However, you would save almost $2000 a month in mortgage payments, making the payback period for that up-front money only 7.5 months.
Similarly, a $500,000 loan at 7.25% is $3410.88 per month and at 4.25% is $2459.70 per month. A $15,000 interest rate buy down would pay for itself in 15 months. Buying down the interest rate is definitely worth considering in this market.
The seller could help with the rate buy down or perhaps a family member could gift you with the extra cash needed at closing to get your payment down to a manageable amount.
Or, you could go ahead and lock in for the going interest rate and plan to refinance once rates decline to an acceptable amount.
If you have found your dream home, don’t let the interest rate scare you away. Marry that house. Date the rate.