Interest rates, the market and when to buy

Up, down, down some more, up a little, down a little. Interest rates have been zigzagging in recent months.

One thing is for certain, these current levels are historically low.

Mortgage interest rates are based off of prime rate. Looking at the history of prime, going back to 1947, is amazing. Prime has flucuated from 1.75 to 21.5. Take a look at the figures in that chart. The levels we saw in recent months are incredibly and buck the historical averages. As of June 1, prime was 3.25. This is a level we saw in December 2008 for the first time in 54 years.

If you are waiting for the housing market to hit bottom and interest rates to drop before taking the plunge to getting your mortgage, it is a risk. Looking at history, we are in a golden period right now. The period after WWII had issues that kept prime low, and the Fed is taking action right now to keep prime low too.

How long will it last? You'd need a crystal ball to know for sure. Some people are waiting to buy houses until the prices drop a little lower, closer to hitting bottom. This is a gamble that could end up costing thousands due to the interest rates.

Say buyers are looking at a $135,000 home (median for Green County). They are unsure of when to buy.

• If they would have bought when the mortgage rates were 4.75%, they would pay $118,522 of interest over the course of a 30 year loan.
  
• If they purchase when the mortgage rates are 5.5%, they will pay $140,942 in interest.
  
• If they purchase when the mortgage rates are 6.25% (still considered a great rate just a decade ago), they will pay $164,237 in interest.
  

What happens if they wait to purchase, hoping prices drop? If that $135,000 drops to $130,000, but the interest rates don't drop back down to the 4.75% levels, what happens?

• They will pay $128,422 in interest if their mortgage is at a 5.25% rate.
  
• They pay $135,722 in interest if their mortgage rate is 5.5%.
  
• They pay $158,157 in interest with a 6.25% rate.

We do know from looking at history that these super-low rates will not last. We know that the government is working to keep rates low for a while, but how low and for how long, no one knows. The only thing I know for certain is that if a buyer is waiting for prices to drop "just a little more", but the interest rates bump up even .5%, they will cost themselves thousands of dollars in the long run.