A Small Change in Interest Rates Makes a Big Impact on the Bottom Line

Today’s low interest rates are a great advantage to homebuyers. A small drop in rates makes a huge impact on your wallet, probably more than you think. Lower rates can make a difference in your ability to afford a home. In fact, if you are currently renting, you may find that a house mortgage is less expensive each month than what you’re currently paying in rent.

Let’s look at some examples. Let’s say you are buying a home valued at $150,000 and you’re putting $10,000 down so your loan amount is $140,000, and you’re getting a 30-year mortgage.  At a 5.5% interest rate, your monthly payment ends up being $951 so the total of the 360 payments you will make over the life of the loan is about $342,000. Now let’s look at the same scenario using a 3.5% interest rate. Your monthly payment ends up being $785 which is a savings of $166 each month. The total of the 360 payments over the life of the loan is about $282,000, which is a whopping savings of nearly $60,000. So you can see that a 2% difference in your interest rate adds up to literally tens of thousands of dollars of savings over the life of the loan.

This table outlines the two scenarios:                                                                                    

Home valued at $150,000, loan amount is $140,000, 30-year mortgage

Interest Rate

Monthly Payment

360 Payments

Interest Paid

Monthly Savings

Total Savings

5.5%

$951

$342,416

$140,216

   

3.5%

$785

$282,569

$81,652

$166

$59,847

 

This is an example. Your down payment may be different depending on which bank you use. Also, your credit rating will have an impact on the interest rate your bank will offer.

A great resource for figuring out payments: Click Here