Why Mortgage Interest Rates Matter by Josh Bartolotta

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Mortgage interest rates move the needle more than you might think…

With the recent down-tick in mortgage interest rates (up to half a percentage point in some instances in the last 2 to 4 weeks), buyers who are even casually looking to purchase a home should strongly consider buying NOW if the right property presents itself. Interest rates haven’t been this low since February 2018, and it has once again become a smart financial decision to take advantage. The Federal Reserve has been a key player, as its response to the economy and any perception of instability (real or not) has helped rates fall more quickly than they otherwise might.

So, what do the dollars and cents look like, you might ask? Let me show you…

Joe and Amy (our fictitious buyers for this example) just bought a house today for $250,000. They’re incredibly excited – the house is perfect for them, and their two kids, Jessie and Donovan! But they became even more excited when they realized how great the timing is. They both have excellent credit scores and really strong debt to income ratios. Thus, they have been pre-qualified for a 30-year conventional loan with a 10% down payment at a fixed interest rate of 3.875%. They’re monthly mortgage payment, including property taxes and insurance, is going to be $1,995/month. And the total payback they will make to the bank over 30 years will be $380,892 ($155,892 of which will be interest). I know, that’s a staggering amount of money in interest, right?! But it’s still better than throwing money away for rent…

  • In this scenario, for every quarter of a percentage point increase in interest rate (just 0.25%), Joe and Amy’s mortgage would be roughly $30 more per month, and their total payback would increase roughly $12,000 over the life of the loan (yep, that increase is all interest the bank is charging).

  • Now, how about if we double those numbers? As previously mentioned, some buyers in the last few days have locked in rates up to half a point (0.5%) LESS than previous quotes given in the past 30 days. While half of one percent is a very small number just about anywhere else, it can translate to a significant amount of money when it comes to a mortgage. In our fictitious scenario above, that 0.5% interest rate increase would mean roughly $60 more per month ($720 more per year) in mortgage payment, and total payback of roughly $24,000 more over the life of the loan.

Are you motivated yet? Call today with any questions or to begin your home search! (585) 545-9004