The Cost of Waiting: Why Delaying Your Home Purchase Could Be More Expensive

Mortgage rates are nearly double what they were between 2020 and 2021. Back then, many buyers were able to snag interest rates in the 2% to 3% range. Because of this, some people are now choosing to delay buying a home—hoping that rates will return to those record lows.

But while the idea of paying a lower mortgage rate is appealing, this approach could end up costing you more in the long run.

In this article (Skip to...)

• Missed opportunities
• Rising home prices
• Changing interest rates
• Inflation and cost of living
• Personal financial impact

Missed opportunities

Even though current mortgage rates are higher than they were just a few years ago, they are still historically low compared to the past when rates were in the 8%, 9%, and even 10% range.

The state of the housing market can change quickly and abruptly. With that being said, mortgage rates are always on the move, and they don’t always move downward. If rates continue to creep up, this could greatly impact your housing expense.

Higher rates increase the cost of borrowing, which can also affect your purchasing power. This means a home in a desirable neighborhood that is affordable today with a 6% interest rate may no longer be affordable if rates increase to 8%, as higher rates lead to higher monthly payments.

Also, property values typically rise over time, which can be either a plus or a minus depending on your situation.

If you purchase now, you can take advantage of these rising values and build home equity sooner. But if you delay, those rising values could push your dream home out of budget, leaving you with limited options.

Rising home prices

The average sale price of a home in 2024 is over $400,000, up 5.8% from a year ago. While it’s impossible to predict with certainty how prices will change in the coming years, some mortgage forecasters believe home prices will continue to climb, though at a slower pace.

Higher home prices combined with higher interest rates can have a significant impact on affordability.

For example, if you buy a home priced at $425,000 today with a 6.6% interest rate, your monthly mortgage payment (excluding taxes and insurance) would be approximately $2,715.

However, if that same home’s price increases to $500,000 next year—with the interest rate still at 6.6%—your monthly payment would jump to around $3,204. A $489 difference per month illustrates how rising home prices can quickly affect affordability.

This can affect your loan options too. For example, you might want a conventional loan since you can eventually remove private mortgage insurance (PMI), but you might end up choosing an FHA loan instead because it requires a smaller down payment.

Changing interest rates

When you repay a mortgage, you’re not just paying back the principal—you’re also paying interest. The higher your rate, the more you’ll pay each month. On the flip side, a lower rate means you can afford more house for your money. That’s why a drop in mortgage rates often sparks more buyer demand.

Several factors can drive up mortgage rates, including inflation, the strength of the economy, and actions taken by the Federal Reserve, such as raising the federal funds rate. If any of these factors push rates higher, borrowing becomes more expensive.

To illustrate this, consider a $400,000 mortgage at a 3% interest rate. In this scenario, your monthly payment (excluding taxes and insurance) would be approximately $1,686. But if the rate rises to 6.6%, that payment would jump to around $2,556.

Inflation and cost of living

As home prices increase, so do your mortgage-related expenses, including your down payment and closing costs. Closing costs, which are lender and third-party fees, typically range from 2% to 5% of the loan amount. Down payments vary, but usually range from 3% to 5%, depending on the type of loan.

The higher the home price, the more you’ll need to pay out-of-pocket. For instance, with a $400,000 home, a 5% down payment would be at least $20,000. If the price rises to $500,000, that same 5% down payment would jump to $25,000.

Unfortunately, this makes it harder to save for a down payment, especially as other living expenses like gasoline, food, travel, clothes, and insurance continue to rise. If you’re currently renting, you may also deal with increases in your monthly rent. All of this can make homeownership more challenging.

The longer you wait to buy a home, the more you’ll need to save for upfront costs. If you have the funds now, purchasing sooner could save you money and help preserve more of your cash reserves.

Personal financial impact

It’s also important to consider how delaying a home purchase could impact your finances in the long-term. Higher home prices later mean a higher monthly payment, resulting in less disposable income each month.

If the cost of buying later becomes higher than buying today, this could affect how much you’re able to save for retirement, and how quickly you can retire.

A higher interest rate also means you’ll pay more for your home over time. On a $400,000 mortgage at a 6.6% rate, the total interest paid over 30 years would be approximately $514,000. But at an 8% rate, the total interest paid would jump to around $655,000—a difference of $141,000.

Even if you purchase now at a higher interest rate, you might have the option to refinance in the future, if rates drop. You can lock in a price now and potentially lower your mortgage payment later, rather than risking the possibility of both home prices and interest rates increasing in the future.

Bottom line

Waiting for mortgage rates to drop before buying a home might seem like a good idea. However, there’s no guarantee that rates will decrease, and home prices might continue to rise. In which case, waiting could end up costing you more. Timing is everything, so speak with a mortgage loan officer or a real estate agent to discuss your options.