Interest rates have been at historic lows for the last several years. Can you believe mortgage rates were 18.31% back in 1981? OUCH!!! As the United States economy continues to heal and grow, mortgage rates are expected to steadily increase. While experts are predicting mortgage rates are going to increase in 2018, its difficult to understand what this actually means to you. So what are the costs of rising interest rates?
A Mortgage Payment Example
A mortgage payment is split into several smaller portions. These smaller portions typically consist of the following: principal, interest, PMI ($0 for VA loans – which is another great reason why you should use a VA Loan), property taxes, and homeowner’s insurance. To help illustrate this let’s say your mortgage payment is $1000 per month. Of that $1000 payment, $300 goes towards principal, $200 goes towards interest, $400 goes towards property taxes, and the remaining $100 goes towards homeowner’s insurance. For the sake of this article we will focus on just principal and interest. The principal portion of a mortgage payment buys down the actual amount of money you borrowed and must pay back to the lender. The interest portion of a mortgage payment is basically a fee the lender charges you in exchange for them loaning you money to purchase your house.
What a 0.75% Mortgage Interest Rate Increase Really Means
To understand the financial impacts of a rising interest rates it helps to run a couple calculations. The calculations below take into consideration 30-year fixed mortgage with a 0% down payment. To illustrate the impact of a mortgage rate increase principal and interest are only considered below. Based upon statistics from the U.S. Department of Veteran Affairs the average VA home loan amount was $254,870. With a mortgage rate of 4.25% this equates to principal and interest payment of $1,254 per month and a total amount of interest paid over the 30-year life of the loan equaling $196,499.
Now let’s compare the number above to a mortgage rate of 5.00%. The same $254,870 loan amount will have a monthly principal and interest payment of $1,368 and a total amount of interest paid over the mortgages 30-year life of $295,240. This 0.75% increase in mortgage rate ends up costing you $114 per month and an additional $57,560 over the 30-year life of the loan!! This is the real impact of just a 0.75% mortgage rate increase. It’s part of the 3 reasons why you should refi or lock now!
Rising Interest Rates – Save Before They Go Higher
If you are on the fence with regards to purchasing a new home, don’t wait a couple months just to inevitably watch mortgage rates rise. Save yourself thousands of dollars and make the decision today to lock in your historically low mortgage rate. Click here to fill out your contact information. The industry is expecting another competitive year with most properties receiving multiple offers. Don’t lose out in a multiple offer situation because you don’t have your mortgage pre-approval letter. Apply Now to see your rates!
0 Comments