During the last several months we’ve seen record low interest rates. With interest rates remaining below 5%, the savings over the course of a 30 year fixed mortgage are remarkable. Combined with high levels of housing inventory for sale and a downward pressure on home prices, for the well-qualified home buyer, this can be a great time to buy.
Interest rates on a 30 year fixed rate mortgage are currently close to 4.375%. The monthly payment* on a $200,000 mortgage at 4.375% would be $998. A year ago the average interest rate was 5.25%, which would result in a $1104 monthly payment on a $200,000 mortgage, a difference of $106 per month or $1272 per year. In the third quarter of 2008 the average interest rate was 6.25%, a difference of $233 per month or $2796 per year on a $200,000 mortgage. A year earlier, at 6.5%, a homeowner would have expected to pay $1264 per month in principle and interest, $266 more than this year and $3192 over the course of a year.
Over the life of a 30 year mortgage of $200,000 at 4.375%, with no adjustments or refinancing, a homeowner could expect to spend $38,000 less than if they had purchased a year ago, $83,800 compared to two years ago, and more than $95,000 compared to three years ago.
The upside of the current economic climate is the overall lower price that home buyers can expect to pay when they qualify for the historically lower interest rates. See my website for mortgage calculators to approximate mortgage payments for more specific loan amounts and to compare payments on 15 year and 30 year loans.
If you’re considering buying a home, be sure to consult with a Real Estate professional and a Mortgage professional to determine the best price range and mortgage product for your specific situation.
* This article is comparing the impact of interest rate on principle and interest payments. These examples are approximate and do not include taxes and insurance.