You’ve probably seen headlines that interest rates are on the rise, but what does that mean for homebuyers? While purchasing power (or the amount you can afford) goes down, there are still many financial benefits to buying a home. Even with higher interest rates, homeownership is one of the safest and most effective ways to grow wealth.
If you’re unsure if now’s the right time to buy, you’re not alone. It’s easy to be scared off by the rise of interest rates, but it’s important to remember that homeownership is a long-term investment. When you look 3-5 years down the road to get the full picture, you can decide if buying a home is a good financial decision for you.
WHAT ARE THE BENEFITS OF BUYING NOW?
To help get the full picture, let’s take a look at a hypothetical situation. Say you purchase a home that costs $300,000. With the current interest rates, you’re potentially spending an additional $300 a month, or $3,600 a year, in interest. That number alone might be worrisome, but don’t forget we’re playing the long game.
Unlike other financial investments where the market frequently goes up and down, the housing market typically has a steady increase in value. With a modest increase in appreciation of 6% (which is well below the staggering double digits we’ve seen over the past few years), the value of your home would increase by $18,000 a year.
Fast forward three years. You’ve spent an additional $10,800 in interest, but you now own a home valued at $354,000. Subtracting the increased interest, that’s still a net gain of over $43,000 in equity.
ARE THERE OTHER BENEFITS?
You’re probably feeling the impact of inflation on your day-to-day life. Many experts agree that buying a home is one of the best ways to fight rising expenses because you can lock in a fixed, consistent payment in one of your largest monthly expenses.
If you’re currently renting, the pros of buying a home typically outweigh the cons. In addition to the equity you grow when you own a home, you don’t have to worry about rising rent prices. In September, rent rose by 7.2%, the highest increase in 40 years.
And if those reasons aren’t enough, the interest on your mortgage is tax deductible so you’ll see a positive impact on your taxes each year.
HAVE MORE QUESTIONS?
Give us a call. Every home-buying situation is unique, so it’s important to understand your personal finances and the market you’re buying in. We can connect you with a trusted lending partner to discuss your financial options. And when you’re ready to buy, we’ll be ready to help you find the home of your dreams.
