Interest rates are the price tags for borrowing money. It’s the extra amount you owe on top of the original loan. Dreaming of buying a home? Learn more about how changing interest rates can affect your mortgage payments.
Rate Increases Lead to More Costly Mortgages
Market fluctuations can raise or lower interest rates, which may impact your budget and purchasing power. Rising interest rates can also increase the cost of borrowing money to buy a house. Even a 1%
increase may have significant implications on your personal finances. Let’s examine the potential savings and costs of securing a mortgage with a 1% rate difference.
How Much Can A 1% Difference in Your Mortgage Rate Save Or Cost You?
On a $300,000 house with a 20% down payment and a 30-year fixed-rate mortgage rate at 3% interest, your monthly payment (without insurance or taxes) would be $1,011. That number jumps to $1,145 with a 4% interest rate. You can expect to save $134 per month with the lower mortgage rate, or $4,020 over the life of the loan.
What Determines Mortgage Rates? Mortgage rates can be influenced by a variety of factors. Knowing what they are may help you better understand your loan options. Here are some examples:
1.) Credit scores over 740 can mean lower mortgage rates and more loan options, while scores below 620 can result in higher rates and more limited loan options.
2.) Inflation often increases when mortgage and borrowing rates are lower.
3.) Mortgage rates typically rise to help slow these growing inflation costs while decreasing buying demand.
4.)Strong economic growth can raise mortgage rates, but weaker economic cycles can lower them. Key factors that can impact economic growth include inflation, technological advances, and
consumer spending.
What Can You Do to Save on a Mortgage?
Did you know that the minimum mortgage payment in the U.S. is around $1,700 a month?1 Fortunately, you can take some steps to help save money, including:
Refinancing your mortgage loan.
Making biweekly half payments increases your payments to 13 instead of the standard 12 per year.
Eliminate your Primary Mortgage Insurance (PMI) payments once you reach 20% in home equity, if possible.
If you’d like more information about how to make strategic decisions with your next home purchase, let’s schedule a meeting.
1) Tracey, Melissa. “The Average Monthly Mortgage Payment Is Above $2,300.” Realtor Magazine, 4 May 2023, http://www.nar.realtor/magazine/real-estate-news/the-average-monthly-mortgage-payment-is-above-2300.
Source: Steve Lindquist – gbfinancial.org
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