Why the Cost of a Home Is Far More Important than the Price

Dated: October 13 2020

Views: 269

The Cost of a Home Is Far More Important than the Price

The Cost of a Home Is Far More Important than the Price | MyKCM

Housing inventory is at an all-time low. There are 39% fewer homes for sale today than at this time last year, and buyer demand continues to set records. Zillow recently reported:

“Newly pending sales are up 25.5% compared to the same week last year, the highest year-over-year increase in the weekly Zillow database.”

Whenever there is a shortage in supply of an item that’s in high demand, the price of that item increases. That’s exactly what’s happening in the real estate market right now. CoreLogic’s latest Home Price Index reports that values have increased by 5.5% over the last year.

This is great news if you’re planning to sell your house; on the other hand, as either a first-time or repeat buyer, this may instead seem like troubling news. However, purchasers should realize that the price of a house is not as important as the cost. Let’s break it down.

There are several factors that influence the cost of a home. The two major ones are the price of the home and the interest rate at which a buyer can borrow the funds necessary to purchase the home.

Last week, Freddie Mac announced that the average interest rate for a 30-year fixed-rate mortgage was 2.87%. At this time last year, the rate was 3.73%. Let’s use an example to see how that difference impacts the true cost of a home.

Assume you purchased a home last year and took out a $250,000 mortgage. As mentioned above, home values have increased by 5.5% over the last year. To buy that same home this year, you would need to take out a mortgage of $263,750.

How will your monthly mortgage payment change based on today’s lower mortgage rate?

This table calculates the difference in your monthly payment:The Cost of a Home Is Far More Important than the Price | MyKCMThat’s a savings of $61 monthly, which adds up to $732 annually and $21,960 over the life of the loan.

Bottom Line

Even though home values have appreciated, it’s a great time to buy a home because mortgage rates are at historic lows.

Blog author image

Derek Brandenburg

The founder of the Brandenburg Crew Inc., Derek, was raised with the notion that hard work was a way of life. Growing up on a farm, most days started at 6am, and ended at 11pm. This work ethic followe....

Latest Blog Posts

Why the Cost of a Home Is Far More Important than the Price

The Cost of a Home Is Far More Important than the PriceHousing inventory is at an all-time low. There are 39% fewer homes for sale today than at this time last year, and buyer demand

Read More

Selling this Fall May Be Your Best Move - Here's Why

If you’re thinking about moving, selling your house this fall might be the way to go. Here are four highlights in the housing market that may make your decision to sell this fall an easy one.

Read More

New Listing in DL! 21522 NE Pickerel Lake Road

You don't need to look anymore, THIS is your next lake home. Situated in the pines of Pickerel Lake, just north of Detroit Lakes, is this beautiful home that offers stunning views off of two large

Read More

New Listing! 503 B 33rd Way E, West Fargo, ND 58078

Unbelievably unique! This beautifully built and maintained townhome has it all (which you can easily enjoy while the HOA takes care of your snow removal and lawn care!). All three bedrooms are

Read More