Late last year and early this year there was a lot of press about the $8,000 Tax Credit for home buyers. After that expired you might have felt like you missed a great deal and decided not to buy. Believe it or not, interest rates are so low right now that you can save more in the first five years of owning a new home than you could have received from the Tax Credit.
This deck (and the house attached to it) is For Sale at 1993 S Marion
Let's take a look at how these two situations compare for a buyer named Bob.Just for fun, let's call him œTax Credit Bob and œLow Interest Rate Bob in these two scenarios.
Tax CreditBob bought a $208,000 home. He put as little money down as he could ($8,000) leaving him with a $200,000 loan. At the time the Tax Credit was available, he got the lowest rate he could which was 5.500%. That made his monthly house payment about $1,136. The Tax Credit gave him a one time credit for $8,000.
Low Interest RateBob buys the same $208,000 home today. He still puts down $8,000 and gets a loan for $200,000. Today he could get an interest rate of 4.500%, which makes his monthly payment about $1,013. His payment is a little better, but he doesn't get the immediate gratification of a tax refund.
5 Years Later
Tax CreditBob spent his refund on a vacation and some new furniture.
Low Interest RateBob didn't get a refund, but he has spent $9,938 less because of his lower monthly payment, PLUS he has $2,605 more equity in his home.
This illustrates just how important today's low interest rates are. Interest rates do fluctuate from year to year and even from day to day. Nobody knows exactly when they will rise or fall. Knowing that and knowing how much difference getting 1.000% lower of an interest rate can make, why would you wait to buy a home?
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