Why Interest Rates Matter

 In Advice for Home Buyers, All About Houses, Home Mortgages

When you’re budgeting for your dream home, the most common thing to do is look at the price of the house itself. But your bottom line can be drastically affected by one little thing: your interest rate. The smallest of fluctuations can affect your monthly mortgage payment. When you’re shopping for homes, keep an eye on interest rates. If they dip, it may be time to pounce. Here’s why.

For a buyer, a loan’s interest rate is the additional ‘fee’ you pay in order to be able to use this borrowed money. There are a few different agencies that control rates but the biggest one with the most power is the Federal Reserve. They are tasked by the government to keep rates stable and in a zone that maintains economic inflation.

In 2019, the Federal Reserve assessed their policy of raising interest rates to keep the economy stable. This came with a decision to raise interest rates to between 4.5% and 5.0%. Only two years ago, those rates were consistently under 4.0%.

Why This Disparity Matters

Let’s look at the numbers. Say you purchase a $300,000 home with a $60,000 down payment and a 5.0% interest rate. You’re looking at a $240,000 mortgage loan with an average monthly mortgage payment of about $1,290. Over the course of the full 30-year mortgage, the total interest paid on the loan would be over $223,000.

But what if that interest rate dipped to 4.0%?

On the same $300,000 loan and with the same down payment, that 4.0% interest rate brings the monthly payment down to $1,145. Total interest paid over the life of the loan would be just under $173,000. That 1% difference in interest rates represents a savings of $50,000 over the course of your 30-year mortgage.

With all factors being equal (things like credit score and your down payment), being able to strike while the “iron is low,” so to speak, means big savings for you. Watch interest rates like a hawk and pounce when they dip!

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