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More Sellers Must Mean a Buying Opportunity, Right?
For the first time in a long time, we may be edging towards a buyer’s market. High interest rates are starting to bite and there has been uptick in listings. Good news for buyers?! Well, not so fast! Those same high interest rates are making it even harder for some people to buy than when the market was at it’s height. How is that possible?
If a house was worth $1.2m and is now worth $1m, it must be easier to buy?
You would think, right? But let’s look closer at the numbers. Let’s say this hypothetical house was available at $1.2m when rates were at 3% (remember when we thought 3% was high?). The monthly mortgage payment on this property would have been $4,047.
Now, let’s look at that same house at $1m with a 5.6% 5 year fixed mortgage (the best available at time of writing). The mortgage payment would be $4,593. So the purchase price comes down $200,000, but the monthly cost is up $546.
Wait or Jump In?
That’s the question many buyers are asking themselves. Should we wait until rates come down and then buy? The risk in waiting is that either rates don’t come down and you’ve waited for nothing or that they do, but prices go back up. The risk in jumping in is that you’re stuck with those higher payments.
Cashback Toronto Agents Can Help
With up to 50% of their net commission (probably up to 40% of gross), you could expect to get back around $10,000 on your $1m purchase. That would give you around 18 months of paying what you would have paid if the house was $1.2m and the interest rate was 3% ($546 x 18). In 18 months time, if interest rates have come down to 3%, you’re probably going to wish that you could get out of your 5 year fixed. However, if we follow the premise that prices are tied to rates, you can probably reconcile yourself with the fact that your home has grown in value. If we follow this example completely, a 3% interest rate would see your home increase back to $1.2m.
All of this is extremely hypothectical and you certainly shouldn’t base any decisions based on this imaginary scenario. However, hopefully it gives you some ideas.