A Breakdown of Your Real Estate Savings in 2022

I hear this a lot from people looking to make a move in the market or purchase for the first time. “The market is too uncertain”, “Interest is too high”, “I should’ve purchased when interest was low”. Yes, interest is high! But prices are low too.

Now I get that this economy is in a massive transition currently, but I also believe this is a huge benefit to buyers. My advice has always been to take advantage while the market is in your favour! As soon as we see interest reducing again, we will likely see the market balance and prices will start to slowly increase.

This time last year, we saw our sales-to-listing ratio at a high 90% (meaning 90% of new listings were selling). As of our recent monthly stats, we are below 30%. This means you have a lot more to choose from and no competition. You also get the opportunity to add all the conditions to your offer and spend the time you need to make sure it’s a good investment. Buyers didn’t get this luxury one year ago!

The biggest concern is the total cost of your purchase and mortgage. So, let’s look at the total cost for a 5-year term. This assumes you choose a fixed rate for 5 years (and not variable) so it’s likely a worst-case scenario with our current interest rates since you could probably go with a 2-year and refinance at a lower rate once things settle down. One of my go-to mortgage brokers, Terri Hitchcock from the Mortgage Group, was able to crunch some numbers based on today’s rates and this is what was determined:

Potential Purchase Oct 2021 Potential Purchase Oct 2022
List Price $1,000,000 List Price $1,000,000
Accepted Offer $1,150,000 Accepted Offer $950,000
Down payment $230,000 (20%) Down payment $190,000 (20%)
Mortgage $920,000 Mortgage $760,000
Rate 2.39% Rate 5.64%
Payments $3,577/mo Payments $4,350/mo
Term Interest $101,783 Term Interest $200,777

Difference in purchase price ($200,000)
Difference in interest paid $98,994
Total cost difference $101,006

Overall, you are saving just over $100,000 on a purchase worth $950,000 (hypothetically), or an approximate 10.6% savings. Yes, you have higher interest costs over the term, but you must also consider the total purchase price. Most buyers these days are paying up to 10-20% less than what they were paying a year ago. That’s a huge saving that we are forgetting!

Now I will say that I completely understand if you cannot afford a higher mortgage payment because that will occur too with these rates. However, if you can afford a higher payment for a couple of years then you are still winning. Once you go back to refinance, you will very likely have a lower payment at that point (and a ton of equity built up in the meantime).

As always, I’d be happy to chat with you one-on-one since all situations can be different. Please reach out to me at the contact info below. I’ve included Terri Hitchcock’s information as well if you have specific mortgage questions.

Alexandra Dawes
Real Estate Advisor, Engel & Volkers

Terri Hitchcock
Mortgage Broker, The Mortgage Group