Is Waiting for a Lower Rate Worth It?

As the time to apply for a mortgage nears, perception and percentages really start coming into play. If the current average 30-year fixed rate was 6.25% but experts were assuredly predicting a rate of 6% in six months, would you wait? Let’s take a closer look at the answer. 

Availability and Predictability 

If the current living circumstances allow waiting, such as living with family or renting on a month-to-month basis, most people would say “yes.” Six months doesn’t seem to make such a big difference, given the availability of staying put. In fact, in recent years, report after report has shown potential buyers doing just that. The thing is, did it pay off? 

Predictability of Interest Rates   

Starting in late 2022, interest rates had climbed from the pandemic’s historic lows to around 7%. For the next two years, experts far and wide predicted that rates would return to being in the 5%’s within six months, by mid-next year, by the end of the following year, etc. Finally, it was the end of 2024, and rates still hadn’t reached 6%. The experts had perfectly reasonable data and estimates to back up their claims, and there were no major shifts that directly threw mortgage interest rates off their course. So, what happened? This turn of events simply proved that, when it comes to mortgage interest rates, you just don’t know. 

In the Meantime… 

So let’s say a first-time buyer, living rent-free at home, waited two years for the 5% or 6% prediction to come true. That would mean they missed out on thousands of dollars earned via equity in those two years. If the buyer was renting during those years, they weren’t just missing out, they were losing thousands, if not tens of thousands of dollars. So, the question is, would eventually locking in a 6% rate make up for the thousands lost by waiting? Keep reading. 

Perception and Certainty 

Interest rates inch up and down constantly, making increments of 0.15% or 0.25% seem dramatic. If you’re in the market for a home or read financial headlines, you may know that seeing 6.25% as opposed to 6.00% makes the latter seem like the deal of a lifetime. In other words, it’s perceived as something worth waiting for. The next question is… 

How Can We Be Sure? 

As described in previous sections, no one can ever be sure of what interest rates will do. So, we turn to something we can be certain of: the dollar amount difference. Below is a set of home prices, ranging from a modest condo to a near-luxury home. For each price, we have calculated the monthly P&I payment difference between a 6.25% and 6.00% 30-year mortgage with 10% down. Take a look at how much you would save per month by waiting for a lower rate:  

• $230k – $33
• $375k – $55
• $550k – $80
• $800k – $117

Now, the question “Should I wait for a lower rate?” changes a little bit. Instead, you can ask yourself, “Do I think it’s worth it to pay $__ more per month so that I can start owning and building equity now?”  From a 2-year perspective, if you’re in the $375k range, you would have spent about $1,300 more by locking in a 6.25% rate. However, during those two years, you could easily gain $2-5k in equity. 

Find Your Answer

This article could go on forever with numbers, tables, and illustrations, but only you will know the correct answer for your specific scenario. Talk to a mortgage banker and see the whole picture today.