“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” – Warren Buffett
With the economy in disarray, Mick and Kelly are uncertain about making a large purchase...in fact, it could be the largest purchase of their lives, a $1.5 million home.But with the real estate market in the dumps and the persistent recession, they’re not sure if now is a good time to buy.
If they follow the philosophy of Warren Buffett, the Oracle of Omaha, then now is the best time their lives to purchase this home.
Let’s break down why this is.
Mick and Kelly are selling their current home and will use the proceeds plus some savings for a $600,000 down payment.They will need a $900,000 mortgage to complete the purchase of the $1.5 million home.
They think that rates will rise in the future, so they choose a 30 year fixed mortgage at 5.5% (current rate for a 30 year Jumbo loan, yes...Jumbo Loans are avaiable!).
The monthly principal plus interest payment is $5,110.
If Mick and Kelly decide to wait a couple of years to see if home prices have bottomed, what might happen?
We will only know that prices have bottomed after they rise.
So a couple of years later, they can buy the same home for $1.6 million (a modest 3% annual increase).And the economy has slowly improved so interest rates are higher as well.
Let’s say interest rates have risen to 7.5% (a more average historical rate, but not bad).
Now they need a $1 million loan at a higher interest rate. The principal plus interest payment in this scenario is $6,992...up $1,882 per month!
Over the life of the mortgage, that is an extra $577,520 in extra interest alone. Who wants to pay that?Of course I can’t predict what interest rates or home prices will be in two years, but a 3% annual increase in prices and an extra 2% in interest rates are well within reason.
Many experts agree that interest rates are at their bottom right now.
My point is.....that now is an unbelievable buying opportunity, so don’t let it pass you by.
Chris Mozilo | NMLS# 183726; AZ LO-0912308; BKBR-0115591; CA-DOC 183726
