When you purchase a home, the purchase price, down payment, and closing costs are only part of the equation. One of the smallest, but most important numbers home buyers should understand is the interest rate–and why it’s such a big deal.
The interest rate affects monthly mortgage payments on your current mortgage and the total amount you pay for your home over time. In the last several weeks, interest rates have hit record lows, and everyone is making a big deal out of it. But why? Well, because even just a single percentage point could save you thousands of dollars over the lifetime of your mortgage.
For example, consider a 30 year mortgage loan for $300,000 with a fixed interest rate of 4.5 percent. Over the life of your loan, you’ll pay a total of $247,220 in interest charges. Monthly payments on this loan would be about $1,520 (not including property taxes or homeowners insurance).
If you get the same loan at 3.5 percent, the total interest changes over 30 years will be $184,968. Monthly payments on this loan would be about $1,347. Just a single percent saves you over $62,000 in interest charges, not to mention the $173 lower monthly payment.
So, if you weren’t quite sure what all the fuss has been about, hopefully this clears it up—it’s a great time to buy real estate or refinance a mortgage. Rates are great!
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