We Bought a House With an 8% Mortgage and Are OK With It—Here’s Why

by Garcia Chris
5 minutes read
We Bought a House With an 8% Mortgage and Are OK With It—Here’s Why

One real estate rule you might have heard, especially of late, is to never buy a home when mortgage interest rates are high. This is why many house hunters have paused or pumped the brakes on their search, cowed by the 7% and even 8% rates that have surfaced over the past year.

But not me.

In June 2023, my husband and I secured an 8% mortgage on our first home, in St. Petersburg, FL. To some, this might seem like a risky and unwise decision.

But here’s why we’re perfectly OK with this choice.

My husband and I bought this home with an 8% mortgage.

(Liz Brumer-Smith)

We bought the home at the right price

My husband, Dennis, and I are real estate investors in our 30s who have purchased many properties in the past, but this home was the first we purchased to live in ourselves. And by anyone’s standards, it was a deal at just $225,000.

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As a buyer, I had to accept that if I waited for better rates, I could be paying a lot more for the home in the future versus accepting a higher interest rate today, but a lower purchase price.

There’s a lot of debate about whether homebuyers should focus more on the purchase price or the mortgage rate. Both affect your monthly payment and the overall affordability of the home over the long term. However, I believe the home price is more important than the mortgage rate, at least in my case.

This home was cheap because it was in terrible condition and needed a full renovation. Over five months, we spent about $50,000 in renovations—plus around $6,000 in interest fees—bringing our total investment in this property to about $281,000.

In November, we had our property appraised and were thrilled to see its value rise to $340,000. That’s a 20% increase in value from our original investment cost and a 51% increase from the initial purchase price!

The money we’ve paid in interest on this house pales in comparison to what we’ve gained by seizing this opportunity when we did.

We married the house, not the mortgage

We took the approach of “marry the house, date the rate.” This mindset means I intend to be in the home for the long term and can refinance if and when rates go down.

This strategy is not foolproof, but considering rates are predicted to go down in the coming year, I feel positive about the opportunity to refinance at a lower rate soon.

The key to achieving this is keeping our debt-to-income ratio low and maintaining a steady paycheck so we can easily get approved for a refinance when rates dip. My current mortgage has a prepayment penalty for one year, so I will have to wait until that period passes before applying. But that’s OK, because rates are predicted to be their lowest at the end of 2024, when I can refinance without penalty.

I can afford the mortgage payment at the 8% rate

The last reason I’m perfectly OK with my 8% mortgage is that I can afford my monthly payment at this rate. While 8% is the highest the market has seen recently, it’s not much more than I originally estimated paying.

At an 8% rate, my mortgage payment is $2,017.85 a month. Refinancing later at a 6.5% mortgage rate would help reduce my monthly payment by about $280. If rates fall even further when I’m ready to refinance next year, I’ll see even more savings.

The main takeaway: I’m not relying on the lower monthly payment happening to get by, but simply benefiting from the savings when I refinance in the future.

If you’re in a red-hot market where prices are climbing like I was at the time we bought, then securing a home even though rates are still high is likely the better move. Just make sure you are financially ready to purchase and can afford a monthly payment based on current rates and home prices.

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While there is no crystal ball to say where mortgage rates or prices will go, I believe that you should always make big decisions like homebuying based on your needs today rather than tomorrow. So even if rates are higher than you’d like, this should not necessarily stop you from moving ahead as long as you’re prepared.

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