Little Rock renters who are waiting for mortgage rates to drop before buying a home may be costing themselves more than they realize, according to Jerry Larkowski, managing broker at ESQ. Realty Group, LLC. Larkowski, a dual-licensed attorney and broker, points out that every dollar paid in rent goes to the landlord with no equity built, whereas a mortgage payment includes principal reduction and potential home appreciation.
“When you rent, you’re basically paying 100 percent interest every month. You are building up no equity. You are not paying down any principal,” Larkowski said.
Larkowski explains that a mortgage payment splits between interest and principal, with the interest portion higher in early years but some of every payment reducing the amount owed. Additionally, the home may appreciate over time. In contrast, renters receive no asset at the end of their lease. He notes that if a landlord pays $1,100 a month on their mortgage and charges $1,500 in rent, the tenant is covering that note and generating cash flow for the owner. “You’re already buying a house. You’re buying it for your landlord,” he said.
Many renters compare current mortgage rates, in the mid-to-high sixes, to the 3.5% rates some buyers secured a few years ago, viewing the gap as a reason to wait. However, Larkowski argues that this comparison misses a key point: the person who bought at 3.5% owns a home, while the person waiting owns nothing. Interest rates are beyond an individual's control, but the decision to stop paying someone else’s mortgage is not.
Larkowski advises buying when prices are low and interest rates are high. “You can never change the price you pay for a house. You can always change the interest rate,” he said. If rates fall after buying, homeowners can refinance to lower their payment while keeping a lower purchase price. If rates stay the same, the decision remains reasonable. If rates rise, those who bought early come out ahead. The only scenario where waiting clearly wins is if prices drop significantly at the same time rates fall, which is unlikely in Central Arkansas's historically stable market.
The Little Rock market currently offers more inventory and less pressure to make quick decisions. Quality single-family homes are available at price points where a mortgage payment is competitive with rent. Arkansas has some of the lowest property taxes in the country, keeping total monthly ownership costs lower than expected. A fixed mortgage payment also remains constant over time, unlike rent, which can increase at the landlord's discretion.
For renters considering buying, Larkowski suggests asking whether the current monthly payment builds any asset. More information on available properties can be found on the ESQ. Realty Group active listings page.
