A lot of people think buying a home at a 6% mortgage rate is absolutely crazy. But what if I told you it could be one of the smartest decisions you'll ever make? At the moment, there's a lot of people that hit the pause button ever since interest rates started going up, thinking, "I'm just going to wait. I'm going to wait for interest rates to come down. I'm going to wait for home prices to come down before I jump back in the market." But what if that strategy ends up costing you more money in the long run?
Why Buying a Home at 6% Interest Rate Can Be a Smart Move
Lock in today’s price and refinance later when rates drop
The goal with this article is to help you understand why locking in your interest rate right now could be a financially sound decision and why waiting might end up costing you more money than you think.
At the moment, what we have is a comparison problem, right? If you've reading my articles before, you often hear me say that people have very very short memories, right? They only remember a couple of years ago. And when it comes to home prices and when it comes to interest rates, that's exactly the mindset, right? People are thinking about where house prices were prior to the pandemic. They're thinking about where interest rates were at the bottom of the pandemic. But what people don't understand is how we got there, right?
With interest rates sitting at those lows of 2 1/2, 3, 3 1/2%. That's not normal. That was an anomaly. The only reason interest rates got there is essentially we had this black swan event in the economy, right? We had this pandemic that spread across the world, if you will, and it essentially shut down the global economy. And because of that, what we had is we had the Fed take the Fed funds rate to 0%. Which made borrowing money really, really cheap. On top of that, we had the Fed, you know, stimulating the economy with all of this money. And with people locked at home, getting money put into their bank account, not really being able to go out and spend it, they were able to save not only for down payments, but they were able to put money away, maybe in some cases pay off debt that they weren't able to pay off before. So, a lot of people during that pandemic time ended up in a way better financial position than they would have otherwise.
So when we take a step back, you know, and with a 50,000 foot view and look at that period of time versus where we are now, [clears throat] it's a very small blip on the radar, right? What you have to understand is that from about 1982 to say 2002, we were essentially in a 40-year bull run in mortgage rates, which essentially means interest rates were coming down during that entire period of time. Yes, some years they went up, but the overall trend of interest rates during that period of time was down. And that was broken in 2022 as the Fed started to raise the federal funds rate, right? And during that time, interest rates shot up, right? Which I think we saw the peak sometime in October of 2023, which is ironically when I bought a house, right?
I bought a house in November of 2023. Actually closed in November, and I closed on that property with a 7% interest rate. Now, at the time, 30-year fix rates were about 7 1/2%. I closed on my property on a 7-year ARM at 7%. Now, I bought the house at that time for $1.5 million. And a lot of people online, a lot of people on my articles were telling me, Jeb, you're absolutely crazy. You're essentially buying at the top of the market with price. You're buying at a super high interest rate. Why would you do that?
Well, for me, it was the right time in my life, right? You know, I have three boys, my wife, there's five of us living in 1,700,800 foot property with not really a big yard to play in. my kids are growing. We need more space. We needed additional bedrooms. So on and so forth. So there was a property in my neighborhood that a friend of mine owned that I had been wanting to buy for years. And unfortunately, he never came to me with with that opportunity until this time, right, when interest rates were high, home prices were high, so on and so forth. So for me, it was the right time in my life to make that move.
But here's what's happened since then. Before I ever closed on that property in October, interest rates actually had gone down. And I was able to secure a refinance, a no cost refinance during that period of time where I had to come up with no money out of pocket and actually was able to get a half a percent lower on my interest rate which saved me about $400 per month. So I was able to take my interest rate from 7% down to $6.5%. I saved $400 per month. I came up with essentially no money out of pocket. So it was a no-brainer to do it.
The Hidden Cost of Waiting for Lower Mortgage Rates
Waiting can cost more due to rising prices and competition
And then again about 6 months later I was able to do the exact same thing. I was able to take it from 6 12% down to 6% to save another $400. So now I'm in a total savings of about $800 on my property from where I originally purchased it. At the same time, values were creeping up.
Now, here's the crazy part. Just recently, this past week, I was able to refinance my 6% down to a 5.12% on a 7-year fix. So, the same amount of loan, same type of loan, if you will, and I was able to break my payment down another 630 something bucks. So, all in, I've been able to save 14 over $1,400. $1,430 something. Now, this last time, I did have to pay a little bit of money out of pocket in order to refinance because I wasn't able to raise the interest rate and get any sort of rebate back to pay those closing costs. So, I had to pay about $5 $6,000 in closing costs in order to get this last loan. But when you take the amount of money I'm saving um and you divide it into the cost that I was, you know, that I that it cost for the loan there, it's going to take me about eight or so months in order to recoup the cost of that loan. So in 8 months, I'm going to be at a break even point. And from every point forward, I'll be saving $637 on that loan.
Now, a lot of you ask the question, Jeff, how are you able to refinance your loan with no cost? Well, [clears throat] just in really simple terms, every day there's the best interest rate in the market, right? So say today the best interest rate in the market is 6%. If you take a slightly higher interest rate than the best rate in the market, a lot of times the lender offers a credit back to you that you can use towards closing cost. And that's essentially what I did. So each time I didn't take the absolute best rate in the market. I took a slightly higher rate so that I could use those costs in order to cover the cost of my loan. And the reason I did that is because I'm one of those people that do believes interest rates are going to trend down in the future. so that I'm I'm taking advantage of those opportunities as they present themselves.
So, you're watching this article going and say, "Jeb, you're telling me to buy a home at 6%. Why would I do that if you think interest rates are going to move down in the future?" And that's because I don't know when they're going to move down in the future. So, you know, if you use my example that I just gave you of me personally, you know, I've been able to I bought my house, you know, at at 1.5 million. Um, you know, my payment was based off a 7% interest rate. my payment is now $1,400 lower while at the same time my house price is up about a hundred to $150,000 during that same period of time. So had I waited for interest rates to get down to what I'm at today if I was able to lock that in today. Yes, I would have that interest rate, but I would be paying a lot more for the home today.
And so that's the whole idea here is that is that by purchasing today, you're essentially fixing that housing price, right? You can never refinance the price of your house, but you can refinance your payment on that house if and when interest rates go lower in the future. So, if you're like me and you believe there's an opportunity for interest rates to move down in the future and you're able to qualify because, you know, you still have your job, you still have equity in your property, so on and so forth, then you're able to take advantage of those at that time.
But I realize there's a lot of people sitting on the sidelines saying, "Hey, Jeff, I'm just waiting for not only interest rates to come down, but house prices to come down." And I want you to understand that that's not likely to happen, right? We've seen interest rates move lower. And every time interest rates move lower, guess what happens? More buyer demand comes back to the market. In fact, every 1% that mortgage rates move down, it adds about 4 million potential buyers to the market. Doesn't mean all four million are going to come to the market. It just means four more million people can qualify to buy homes, which means you're going to have more competition out there in the market.
And the other thing to understand is that I've been one of the biggest proponents over the last couple of years of interest rates coming down cuz I believed inflation was going to ease. I believed employment was going to to soften and therefore, you know, the the not only was the Fed going to lower the Fed funds rate, but we were going to see lower interest rates. And here's the thing, I I've been wrong kind of just more so in the timeline because I expected it to happen sooner. And one of the reasons it hasn't happened as quickly as I would have thought is because inflation has been sticky, right? We've had things like tariffs. We had liberation day. We've had, you know, wars in in Russia and Ukraine. We've had, you know, now a war in Iran. And so you have all of these different factors that start playing into, you know, the potential of inflation going higher.
Right now, the risk at the moment is oil prices, right? Oil feeds into everything in the economy. Transportation, you know, airlines, you know, your clothes, I mean, it literally goes into everything. And so, as oil prices creep higher, guess what? The cost of goods are going to become more expensive. And that inflation is is going to get passed along to the consumer, right? And so, it things are going to become more expensive, which in turn means there's a risk against higher inflation in the future. [clears throat] And because of that, the Fed is likely to pause. In fact, we saw it in the latest meeting where they essentially came out and said that, you know, we're watching everything and that there's this uncertainty happening, right?
How Refinancing Can Lower Your Mortgage Payments Over Time
Take advantage of falling rates to reduce monthly costs
And if you've heard me talk before, the market doesn't like uncertainty. They like transparency. They like to know what's going to happen in the future. And at the moment, we don't know what's going to happen. We don't know how long this war is going to last. We don't know the impact on oil prices long term. But what we do know at the moment is that it's already sending, you know, the monthly figures in inflation higher. Um, and if it continues to be a problem over the next couple of months, that means we're longer and longer from hitting that Fed target of 2% on inflation, which essentially means the Fed's not likely to cut aggressively. We're likely to stay higher for longer, which in turn means higher interest rates in the short term.
So, if you're one of those buyers out there waiting for lower rates, then chances are you're going to be waiting longer. And while you're waiting, guess what? House prices are likely creeping up. I mean, I'm going to give you some anecdotal um evidence right now, if you will. I'm working with several buyers here. I'm in Southern California. I understand my market is different than a lot of markets out there, but what I will tell you is it's very competitive. We're making several offers on property. In fact, we've, you know, the last three, four, five offers I've made for almost every client has been above the asking price. There's been multiple offers on those properties. And the next house that comes to the market's not necessarily listed higher than the last one, but they're all selling above the asking price. It's super aggressive out there. Tells me if it continues like this, home prices are likely going to continue to trend up right now.
They're not going to do what they did during the pandemic and shoot up 5 10% in most markets out there. But what you are likely to see is home prices at least keep pace with the rate of inflation. At the at the moment, inflation is 2.5 or so percent on the headline inflation. And what you're likely to see here over the next couple of months is inflation likely closer to 3%, maybe even higher depending on what happens to oil. So if home prices are creeping up 3% annually over the next couple of years, then any savings you're getting by waiting for that lower interest rate means that you're paying a higher price for that home. And when you pay a higher price for that home, and guess what's based off that higher price? Your property taxes. And your property taxes aren't one of those things that you can really negotiate down. So, as you're waiting for lower rates, you're going to end up paying more money for that property long term.
And if you've ever heard me talk before, one of the reasons I think buying a home is so important is because you get an opportunity to fix your housing cost, at least the largest portion of your housing cost, which is your mortgage payment, right? By buying a home on a 30-year fixed or even some sort of fixed arm, if you will, you're fixing your housing costs for a specified period of time. Now, yes, I realize property taxes go up. Yes, I realize insurance costs go up, but also understand when you rent, your rent typically goes up every single year. In most cases, it ranges between 3 to 5%. And guess what happens when the homeowner who owns that property that you're renting gets a higher insurance bill or a higher property tax bill? Don't you think they're passing that along down to you, the renter in that property? So, rents are going to continue to go up over time. So, let's not argue the fact that, you know, yes, your full payment isn't fixed. Your rent payment, none of that is fixed, right? There's no 30-year fixed payment on your rent. So, your rent is going to continue to go up over time.
And here's the best part. The earlier you do this in your life, the better off you're going to be long term. Chances are if you're buying a house in your 20s or your 30s, you're not making the most amount of money you're going to make per year at that point in your life, right? Chances are you're still moving up the corporate ladder. Chances are you're still figuring out, you know, maybe what you want to do, the career you want to be in, the position you want to be in, and as you continue to progress throughout that career, chances are you're making more money. So, the earlier in your life you can fix that housing payment, the better off you're going to be long term because it's going to be a smaller and smaller percentage of your budget.
And I know what you're saying. Well, Jeb, if I buy now at 6%, interest rates go to 5%, then I should have waited for 5%. No, you just take advantage of those lower rates as they present themselves. Now, by doing that, that doesn't mean you should go in and pay a bunch of points. You shouldn't pay a bunch of fees in order to get those lower rates unless you're never going to be able to refinance in the future, right? If you're at the end of your career, right? You're not going to have a job in the future or you know something's going to change and you're not in a position to refinance, then maybe in some cases you do pay points and buy that interest rate down. But for most people out there, paying points is a sunk cost. You don't want a sunk cost, especially if you think interest rates are going to move lower.
Now, if interest rates drop to 3% tomorrow and you're able to lock that in, then you absolutely lock it in with the expectation that, you know, it's probably not going to ever get there again. But the reality is, as we sit here today around 6%, the chances of seeing a 3 3 1/2% interest rate again are very, very low.
So, the thing to understand is that when you buy a house at a 6% today, you're not necessarily stuck at that 6%. And at the same time, you have the market working in your favor. And that's because if interest rates move higher, then you've already locked in that interest rate and you've locked in your housing price. If interest rates move lower, then you take advantage of them by refinancing. Or let's just say interest rates move sideways and they don't go up or down. Well, guess what? As we discussed earlier, chances are home prices are going to keep pace with the rate of inflation, which means they're going to gradually continue to creep up. But by buying that house, what you've done is now you've secured your housing payment, right? You've locked in the ability to have force savings. You're gaining that appreciation on that property as it continues to appreciate over that period of time and you've taken out the risk of the market going against you because now you've locked in that payment.
How Supply and Demand Drive Home Prices Higher
Low inventory and strong demand keep prices rising
And the reason I can say everything that I'm saying confidently in today's article is because everything comes down to supply and demand, right? Basic economics, right? When you have more demand than you have supply, then prices tend to go up. And the opposite is true, right? When you have more supply than you have demand, then that means, you know, softer prices. Prices continue to come down. Well, at the moment, what we have is we still have a supply shortage nationwide in most housing markets out there.
Now, if you're watching this and you're in parts of Florida, Louisiana, Texas, some of these markets, you're probably going, Jeem, you're absolutely crazy. You know, where I am, you can just put an offer in and get your offer accepted immediately. You can get concessions. you can do on. Yes, there are some markets out there like that, but the majority of the United States still has less inventory than it did prior to the pandemic. And even then, inventory was low, right? So, you're in an environment right now in most markets where supply is constrained. You still have a lot of buyers sitting on the sidelines waiting to buy homes. And as those properties become available, guess what? you have competition out there not only from those people sitting on the sidelines but you also have more and more people every single year turning prime buying age, right? So you have multiple generations of people that start to hit that age between 33 and say 38 years old where they decide that they want to become homeowners. And as that happens, you get more competition coming into the market, right?
And if you were to sit there and wait, right? There's a there's a risk to waiting as well, right? The risk is higher prices. The risk is higher interest rates. risk is also higher competition. You got more people going after the thing that you want. In addition to that, you also have the risk of the Fed, inflation, all of those other factors that we talk about that could send not only prices higher, interest rates higher, just impact you in a negative way.
So, what you want to do is take advantage of the market when it presents itself, right? But that doesn't mean you should run out and buy a home, right? There's a right time in your life. And what I say for everyone is, you know, for me it was a family move, right? Why I bought that property, I had already owned the previous property, but the reason I bought the most recent was because the right time for me and my family. We needed more rooms. We wanted a different location. All of these things were driving that move. And I went from a 2.99% interest rate to a 7% interest rate at that time. But for me, it was the right move. And I'll tell you, I questioned it. Had a lot of conversations with different people asking the same things that you're probably asking right now. Am I making the right move?
And now I look back and go, it was 100% the right move because had I sat on the sidelines, which I had done several times before, as I I watched home prices go up, I watched payments come down and I go, I could have done that, but I didn't. I sat on my hands and I waited and I missed that opportunity. And there were many times where I had regrets because, you know, those same homes that I could have bought back then are now considerably higher than where I would have purchased them, right?
So, what I want to stress is you have to buy when it's the right time in your life. But at the same time, you need money in the bank. You need to be able to comfortably make that payment even if interest rates don't move down, right? I don't want you to buy a house with the expectation that the only way you can afford it is if and when interest rates go down, right? That's the wrong move. You need to buy with the expectation that, hey, listen, if this is where rates are forever, I can do it. I might not like it, but I can comfortably make this payment because that's the right mindset. And then if and when interest rates go down, you take advantage of it and you sit back and you smile because you're like, "Hey, listen. I made the right decision at that time based on where I was in my life." And now I've been awarded with a lower interest rate.
But if I were giving you advice right now, don't try to time the market, right? It's a fool's game. I've been lucky multiple times in in doing what I'm doing. It's not because, you know, can pick the bottoms and the tops and all of this stuff because I've also bought at the wrong time, right? I bought in 2006. I went through the whole craziness of, you know, prices dropping and being the highest, you know, purchase in the neighborhood and the whole thing. And that was a different environment. Those were different loans. That was a different time. There was way more inventory. So many different factors.
Smart Home Buying Strategy: When Is the Right Time to Buy?
Focus on personal readiness rather than timing the market
But I would suggest is just buying when it's the right time in your life, having stability, relationship stability, work stability, you know, um, location stability, knowing that you're going to be in that area for a longer period of time, and having a longer [clears throat] term time horizon. I would say 5 7 10 years minimum on anything you're buying at the moment. And that's because there's a chance that home prices do just move, you know, with the rate of inflation, right? So, no real growth in home prices, if you will, when you're when you're comparing it to inflation, but home prices getting more expensive over time because of how inflation actually works.
So, if I were to sum this article up in a couple of words, what I would say, if you're buying now, you know exactly what you're getting, right? You know the payment, you know the price, you know the interest rate, you know exactly where everything is. By waiting, you don't know. You don't know where prices are going to be. You don't know where interest rates are going to be. You don't know where you know your job stabil. Like, you don't know where any of that stuff is going to be. So, the earlier you can do that, the better off you're going to be long term.
