After several years, it’s probably safe to say that we won’t see those 2-3% pandemic rates again anytime soon. If you have been waiting for lower rates, or just less uncertainty in the market overall, you’re not alone. However, there are a number of other considerations besides interest rates when deciding to make a move.
Let’s start with perhaps the most common reason that’s kept people on the sidelines - finances. Whether you’ve been waiting for home values or mortgage rates to drop, let’s look at the potential cost of waiting with an example.
Being conservative, let’s say that Colorado home prices will appreciate 2.5% per year, and let’s be optimistic and say that interest rates will decline by 0.5% annually. Here’s how waiting could impact you on an $800,000 home purchase with a 10% down payment. You can also use an online mortgage calculator to look at this scenario at different price points.
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2025: An $800,000 home with 10% down ($80,000) at a 6.75% interest rate would shake out to roughly $5,284/month
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2026: That same home now costs $820,000, requiring $82,000 down at a 6.25% rate → $5,172/month
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2027: Home value increases to $840,500, meaning a $84,050 down payment at a 5.75% rate → $5,056/month
While waiting might lower your monthly payment by a couple hundred dollars, it comes at a significant cost. And no, we’re not looking at the $4,000 difference in down payment - we’re looking at equity. With just 2.5% appreciation over the next two years, a home that’s $800,000 today could be worth $840,000 in 2027 - that’s $40,000 in equity that you’d miss out on if you decided to wait. And again, 2.5% annual appreciation is on the conservative side - we could easily see stronger price appreciation over the next few years as demand continues to outweigh housing supply. At the same time, nobody can say with certainty where mortgage rates will go in the future.
It goes back to the old saying - it’s all about “time in the market, not timing the market.” For most people, real estate is a long-term investment. And you should try to keep that long-term mindset when considering your next move.
Speaking of equity - there’s a good chance you’ve accumulated a significant amount of equity over the last several years. There are a number of ways to utilize that equity, like upgrading your home or putting it toward a down payment on your next home. If you’re currently locked in with a 2-3% mortgage rate and you don’t want to jump up to a 6-7% rate on your new home purchase, you can also use that equity to buy your rate down.
Going off of our example, buying that $800,000 home today with a 10% down payment would leave you with a $720,000 mortgage at 6.75%. If we’re talking permanent rate buydowns, each ‘discount point’ typically costs 1% of your loan amount, and lowers your interest rate by about 0.25%. So, for around $28,800 (four discount points) you could lower your mortgage rate to 5.75%, which would lower your monthly payment from $5,284 to $4,795/month. Your lender can help you analyze and compare different scenarios - but the equity in your current home could be a game-changer in making your next home more affordable.
Another one of the most important factors to consider when making a move is your lifestyle. Does your current home fit your needs in terms of space, location, amenities, etc? Or would moving drastically improve your quality of life? Buying a new home isn’t purely about the cost, it’s also about the ‘utility’ of the home, and that trade-off is very important to consider from a quality of life perspective. Maybe your new home has a higher monthly cost, but if it allows you to be much closer to friends and family, makes your mountain hobbies much more accessible, or drastically reduces your commute to work, would it be worth the additional cost?
Again, there are numerous factors to consider when making your next move. Try to keep a long-term mindset around the financial aspects, while also weighing the pros and cons in how your next home would affect your quality of life. The right time to make a move simply comes down to when it’s the right time for you.
