Timing is everything, so make a plan

Tanyan Davies-Wall

The new year is almost here, which means it’s time to make some plans. If you are buying or upgrading a home, here’s something to think about: Mortgage Professional America Magazine reports that in 2015 rates are expected to rise to an average of 4.6 per cent on a 30-year fixed-rate mortgage, up from around 4 percent, where they are right now. What's more, those rates are expected to reach 5 percent by the end of 2015.

With interest rates on the rise, understanding how they affect your payment is crucial to your decision making. The first thing that I advise clients to do is set a budget based on a payment they are comfortable with, not on a home price they think they can afford. The price of a home means little compared to the cost of covering the debt service.

For example, if you can comfortably afford a $1,200 monthly house payment, right now you could purchase a $200,000 home once you figure in taxes and insurance. But if the interest rate rises to 5 percent this year, the same payment will only afford you a $178,000 home. We’re looking at a negative impact on your buying power of nearly 10 percent.

Understanding how interest rate fluctuations impact buying power will allow you to make educated financial decisions.

Also, remember that you will always make more money when there is “blood in the water.”

The adage is that investors make their highest returns when everyone else is losing money. Buying a home is no different. I tell buyers that if they are looking for a good deal, winter is often the best time to find one. People needing to sell their homes tend to become more desperate in the winter, knowing that it is harder to sell a home when there is snow on the ground.

If you are planning to buy in the near future, you may want to leverage your buying power and the time of year to get the best deal. If winter house hunting isn’t your thing, the very least you can do is get your ducks in a row. I suggest working with a licensed Realtor and a reputable lender to ensure that you are ready to move come spring time. This affords you two things: it allows you to continually see what the real estate market is doing and the ability to time interest rates to improve your buying power.
Tanyan Davies-Wall is an agent with Voigt-Davis Realtors and a member of the Square One business development organization.