Buy or Refinance – The Weighty Cost of Waiting

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Whether you’re a first time buyer considering the morph into a home-owner or a homeowner pondering a refinance, one calculation worthy of massive priority is the cost of waiting.  Often, great opportunity costs lurk beneath the wait of the debate.

Costs of Waiting to Buy or Refinance a Home

Costs associated with an overly lengthy period of consideration whether to buy or refinance a home are significant.  These costs come in a few categories depending on your personal situation.  A first time buyer timing a purchase has different factors to consider than a homeowner looking to refinance.

In any situation, it goes without saying that current housing expense compared to proposed housing expense tops the checklist.  However, several often overlooked factors are equally important.  In fact, sometimes overall cost and the impact waiting has on your net worth reverse what at first glance appears to be a justified reason for waiting it out.

Factors Impacting Cost of Waiting to Buy or Refinance

Opportunity costs ranks high on the list of factors to consider when waiting.  Whether it be a purchase or a refinance the opportunity costs are important to consider:

  1. Paying higher payment and missing savings each month you wait to refinance
  2. Missing out on tax savings holding of to switch from renting to being a homeowner
  3. Losing out on gaining equity as a homeowner
  4. Not receiving tax benefits such as mortgage interest as a homeowner

In addition to the opportunity costs, waiting presents potentially costly unknown variables.  These unknown variables may sway in or away from your favor.  However, they are worth considering when deciding on next steps

  1. Will interest rates rise or fall?
  2. What will home prices/values be down later on?

Father Time Possibly Biggest Cost of All

Typically, time is most important of all.  It serves as a compounding multiplying factor for all of the above.  Even in cases where interest rates do drop, waiting for a long period of may magnify the cost of waiting.  For example, consider this:

  • Refinancing now saves $200/month
  • Waiting 6 months to refinance results in a lower rate saving $225/month

In this case, it takes 4 years to recoup the $1200 lost by not refinancing without waiting.  True,  by waiting you add $25/month to your savings but what did it cost you to do that?  The cost of waiting was 6 months here.   During that time you were not saving what would have been $200/month.

The same type of situation exists when transitioning from renting to owning.  Each month you wait you are passing on:

  • Mortgage insurance tax breaks (if applicable)
  • Equity earnings in a home (both from increasing home values and paying your mortgage down)
  • Property tax breaks on your income taxes

Each of these multiplied by some / any waiting time period are costly.  The longer that time period the harder the run becomes to catch up.  This holds true in many cases even if interest rates were to fall in the future.   Waiting to buy or refinance can be costly especially when it is not obvious upon first glance.    Consider all factors when considering waiting.

By Jeremy House



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