As of February 7, 2025, mortgage rates in the United States have experienced a slight decline, but by-and-large, rates continue to remain stubbornly high. Should buyers move forward with a purchase, or should they wait for lower rates?
Current Mortgage Rates
The average 30-year mortgage rate has decreased to 6.89%, down from 6.95% the previous week. And the average rate for a 15-year mortgage has also fallen to 6.05%, compared to 6.12% last week. apnews.com
While it is impossible to predict when mortgage rates will decrease again, delaying a home purchase in anticipation of lower rates may not be the most prudent financial strategy. The average price for a home in Loudoun County rose approximately 7.86% in 2024 to $837,942. Inventory continues to remain low, and with the Trump Administration's Return to Office mandate, we expect demand to increase in the DMV. We anticipate prices will continue to increase at rates similar to or more than in the recent past. As prices increase, so do loan amounts and monthly payments. You can always refinance when rates come down, but you can't keep real estate prices from increasing.
Let's Look at an Example
To better understand the financial implications of timing in relation to mortgage rates and home prices, consider the following example:
Assume you purchase a property today valued at $837,000, making a 20% down payment at an interest rate of 6.89%. This results in a loan amount of $669,600, with a corresponding principal and interest (P&I) payment of $4,406. After one year, if you refinance your remaining balance to a rate of 6%, your P&I payment would decrease to $3,969.
Now, suppose you opt to wait for interest rates to drop further. Over the course of the year, that same home price rises to $903,804. With 20% down, your loan amount increases to $723,043, which results in a P&I payment of $4,335—merely $71 less than the payment from the prior year.
While waiting for rates to decrease offers a modest $71 savings per month on the P&I payment, had you purchased the home a year earlier and refinanced, you would have saved $366 per month instead. Additionally, by delaying the purchase, you forgo $65,000 in potential equity.
In conclusion, waiting for lower mortgage rates while home prices are rising often proves to be a financially disadvantageous strategy.
