Buyers who were eligible for the now expired federal government tax credits who were unable to find a property in time to meet the April 30th contract deadline may end up better off if financing a purchasing soon. Interest rates have fallen substantially in the last month since the tax credit expiration and depending upon the size of loan and length of term a buyer owns the property they could receive a bigger benefit by missing out on the credits.
For example, a buyer who purchases a home at the average Tucson area price in April 2010 for $200,000 and puts down 20% for a loan amount of $160,000 would have had a principal and interest payment of $892.47 per month with a 30 year fixed at a 5.34% interest rate. That same buyer now could get an interest rate of 4.625% and that monthly payment would be reduced to $822.62 for an annual savings of $838.20. Over the life of that 30 year mortgage this would accumulate to $25,146 in savings, thereby dwarfing the tax credit. The break even point of such a scenario for the $6,500 tax credit would be 7 3/4 years and for the $8,000 credit would be just over 9 1/2 years. Of course a higher loan amount would add up to even greater potential savings.
This goes to show that there are always many factors to consider when purchasing a home. The tax credits were absolutely a worthwhile consideration, as are interest rates, and of course purchase price. Right now with interest rates near all-time lows again, this makes it a very attractive market for buyers. Assuming home prices don’t fall dramatically further, which seems unlikely at this point locally, it is important to consider taking advantage of these low interest rates. Locking in a low rate may be more beneficial than timing the absolute bottom of housing prices.
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