I Sat With a First-Time Buyer in Southie Last Week. The Rate Was 6.7%. She Still Bought.
Her name was Katie. Twenty-nine years old. Works in biotech in Cambridge. Makes $82,000 a year. Has been renting a studio in South Boston for $2,400 a month. She walked into my office with a pre-approval letter and a look I have seen a thousand times: part excitement, part terror, part "am I about to make the biggest mistake of my life?"
The rate on her pre-approval was 6.71% for a thirty-year fixed. Conventional loan. Five percent down. PMI. The whole package. Her monthly PITI on a $450,000 condo came to $3,180. That is $780 more than her rent. I could see her doing the math in her head. I stopped her. I said, "Katie, do not compare the payment to your rent. Compare the payment to what your rent will be in five years."
Her landlord just raised her rent by eight percent. At that pace, her studio will cost $3,100 in 2031. Meanwhile, her mortgage payment stays flat. The principal portion grows. The interest portion shrinks. In year five, she will be paying roughly $340 less in interest than she is today. And she will have built about $38,000 in equity. That is not a guess. That is amortization.
But here is the thing. I did not just run the mortgage numbers. I ran the life numbers. Katie has $18,000 in savings after the down payment and closing costs. That is a thin cushion. If the HVAC dies in year two, she is putting it on a credit card. I told her to buy a condo in a building with a healthy reserve fund. I told her to avoid the places with low condo fees, because low fees usually mean deferred maintenance. And deferred maintenance becomes a special assessment. A $5,000 assessment on a credit card at 22% APR is a wicked expensive lesson.
We also looked at MassHousing. She qualified for the MassHousing loan with down-payment assistance. That saved her about $8,000 upfront. The rate was slightly higher at 6.875%, but the PMI was cheaper. We ran both scenarios side by side. The MassHousing option won by about $40 a month. Not dramatic. But $40 a month is $480 a year. Over ten years, that is almost $5,000. Plus the $8,000 she kept in her pocket.
Katie asked me if she should wait for rates to drop. I told her the truth: maybe they drop to 5.5% next year. Maybe they do not. If they do, she can refinance. The break-even on a refinance is usually eighteen to twenty-four months. If she stays in the condo for five years, a refi pays for itself. But if she waits on the sidelines and Boston prices rise by 4% while she is renting, she loses $18,000 in purchasing power. That is more than the interest savings from a one-point rate drop.
She signed the purchase agreement on Friday. I got a text with a photo of her holding the keys. She looked terrified and thrilled. That is exactly how you should feel. Buying a home at 6.7% is not easy. It is not supposed to be. But renting forever at 8% annual increases is not easy either. You just get to feel smug about one of them at dinner parties.
Daniel O'Brien, Boston
