Are you considering taking advantage of the current low mortgage interest rates?

Have you wondered if a small increase in interest rates is really that big of a deal?

It is an interesting time in the real estate business. We are on our way to a housing recovery. As the recovery has progressed, we are seeing interest rates on mortgages start to rise, even if only by small percentage points.

Many people have asked why a lower interest rate is so important, and why they should take advantage of the low rates now. Today, we wanted to take some time and answer those questions.

Mortgage Rates and a Little History

Freddie Mac has reported a drop in mortgage rates from 4.43% in January to 4.30% in February. Last year, rates were 3.53%. Five years ago, interest rates were 5.0%. Ten years ago, they were 5.45% and 15 years ago mortgage rates were at 7.04%.

Within ten years, interest rates on average have fallen over 1%. So, why is 1% such a big deal? How much money do you actually save at a 4.5% interest rate versus a 5.5%?

How Much 1% Will Save You on Your Mortgage

Last week, Zillow published an amazing infographic that illustrates just how much a 1% difference will make in your interest rate over the lifetime of a 30 year mortgage.

Zillow used an example of a $300,000 loan with a 20% down payment and compared a 4.5% interest rate to a 5.5%.

The Difference Each Month

In just one month, by purchasing the same home at a 4.5% interest rate versus 5.5%, you would save $147 dollars. To give you an example of what $147 dollars looks like, it is around 40 Starbucks Grande Caffe Lattes in one month.

The Difference in the First Year

In the first year of that loan alone, you would save $2,398. Instead of paying that money to the bank, you could take your family on a week-long vacation.

The Difference Over 15 Years

Over the next 15 years, you will save $34,211 by purchasing your home at the interest rate of 4.5% instead of 5.5%. For a good picture of what that kind of money looks like, Zillow reports that instead of that money going to the bank, you could be enjoying a brand new car and an entire year’s worth of gas.

The Difference Over 30 Years

Over the entire lifetime of your loan, you will save $52,794. That is a 20% down payment on a vacation home worth $264,000.

Summary

As the housing market returns, so will the higher interest rates. A lower interest rate keeps more money in your pocket. That is why we recommend taking advantage of the lower interest rates now. If you are interested in purchasing your first home or upgrading to a larger home, remember right now rates on average are 4.30%. If we can be of any help, please call our office at:

248-348-7200