In a recent Forbes blog post, multimillionaire hedge fund manager John Paulson declared that today’s record-low interest rates made this the best time to buy homes in fifty years. “If you don’t own a home, buy one,” Paulson said. Historically low interest rates are the key here and will not last forever.
- A one percent increase in mortgage rates is ten times more likely to happen than a ten percent drop in home prices.
- A one percent rate increase more than offsets a ten percent reduction in home prices.
- When interest rates fall by one percent, the total interest paid is almost three times more than the interest savings from a ten percent drop in home prices.
- The probability of both happening at the same time is ridiculously small, and homeowners would still pay 15 percent more in interest over the life of the loan.
One quick example is with a purchase price of $250,000 at an interest rate of 4.23% principal and interest would be $981.54 and total interest paid is $191,693. If the interest rate were to increase one percent to 5.23% principal and interest payment would be $1101.93 and total interest paid would be a mind boggling $245,869!!
Potential homebuyers need to understand the positive financial impact that low interest rates have on the cost of home ownership not to mention the thousands of dollars saved in interest payments. For those that can afford to buy or invest, don’t sit on the fence much longer.