As with every and any situation along your financial path, you should first and foremost make sure that making any decisions, both personally and financially, line up with your goals.

This post is created to help you understand the financial costs of waiting to purchase a home in a market where interest rates are higher than the unicorn COVID ranges, and you are hoping they will go down some, eventually. You will see that, financially, buying a home now instead of waiting to see what rates will do is the better financial direction. But, please do not take this to mean you need to go out and buy a home. If buying a home aligns with your goals and you are in a financial position to buy with high financial comfort, that is very different than going out to buy a home willy-nilly because you have FOMO.

The disclosures being written, and read, let’s dive in.

One of the major financial and personal mistakes that many people make (especially post-COVID) is waiting to buy a home because they want to see if they can get better interest rates later. What most people don’t seem to understand is that the interest rate is not actually a fixed cost for most people’s lifetimes. Yes, most people lock in a fixed mortgage rate when they acquire a mortgage, but the rate itself (via the mortgage) is rarely something that people keep for 30 years (or, frankly, for even like 7 years). The average American (depending on time frames of purchasing and economic cycles) traditionally keep their mortgages for around 5 years or less. This is because people move to new homes due to upgrading or downgrading, move to new areas due to job relocation’s or family needs, or the opportunity to refinance to a lower rate or to withdraw equity comes available.

Due to this short-term period of time that most people hold a mortgage (not a home, but a mortgage on the home), you will often hear people in the real estate community adopt the slogan “Marry the home, date the rate”. Though I personally hate that saying, it does shed light on the short-term focus of the mortgage you currently have (or would have if you purchased a home). Most people will own the property longer than they have their initial mortgage on the property, so focusing heavily on waiting to purchase just to acquire a rate is often far less important than people realize (especially if your goal is to hold onto that mortgage rate for as short of a period of time as possible before refinancing).

On top of that tendency to acquire new mortgages fairly often, the second point that needs to be made is with the math. Mathematically, the interest rate will have a smaller total affect on your financial wealth building than owning the asset will. Let’s pull up a calculation, below.

Let’s say you are looking at purchasing a home that is $450,000. For this example, being I am MIDWEST Money Mentor, let’s say the home is in Pennington county, South Dakota. Right now, according to MBS Highway, the forecasted home appreciation for Pennington county, SD, for the next year, is around 3.86%. That means, homes in this county are anticipated to increase in value around 3.86% within the next 12 months (as of this writing in January 2025). Though I bet they increase at a faster rate than this anticipated forecast, we will use those numbers to play it safe. Interest rates are anticipated to be around the middle 6s between mortgage programs, but let’s say for this example, you could buy now and get an interest rate of 6.5%, or you could buy January of 2026 and get an interest rate of 5.75% (so, nicely, 3/4s lower at that time).

Over that 12 month period, if the home range you were looking at went up by 3.86% (as forecasted), that would mean that $450,000 home in 2025 would now be worth (and sold at) $467,370 in 2026, an increase of $17,370. The difference in your payment (for the better) if you bought that house in 2026 for a 5.875% rate, would be about $95 a month, or about $1,140 a year.

That means, if you bought today at the higher rate, you would gain (in this example) $17,370 in equity, but pay $1140 in more interest over 12 months. So, you would gain $16,230 (approximately) in wealth if you bought today instead of next year. No brainer, obviously.

But, you may want to refinance when rates went lower, so we would want to add in refinancing costs to the equation. If you paid around $4,000 in refinance costs (closing company fees, lender fees, appraisal fees, etc.), you would then drop your 1 year gain, in this example, down to $12,230 after subtracting out those costs. Boo-hoo right? Only $12,230, geez what is the point. No one only wants to gain $12,230 in one year. (sarcasm bomb drop).

Here is a quick chart (also supplied by MBS Highway) to help visualize the example.

The only time this math does not make sense, is if you are stretching your finances in order to purchase a home. If you are increasing your housing budget massively and do not have a plan in place to be in a strong financial position with your home purchase, then these numbers do not matter. Wait and save more money, make more money, or do whatever you need to so you can buy the home with ease of mind and money.

If you are going to buy a home regardless because you are in a strong position to do so, put forth the effort to secure the home you want NOW and worry about interest rates dropping later. Worst case, you can refinance (as long as you keep your qualifying ability in a good spot).

For more housing and finance nuggets, keep checking out further posts, such as:

AND if you want to check out an Artists take on creating a home into art, check out this unique house project – https://aeon.co/videos/how-an-artist-transformed-a-dilapidated-hunting-lodge-into-a-house-made-of-dreams