The Power of Mortgage Rates
In light of the record low interest rates, I wanted to show the real power of buying a house with a low rate. For this example I will look at a $200,000 mortgage in two distinct time periods, with the only variable being the interest rate (insuarance, PMI, fees, taxes, etc. are not included in this example).
In August of 2008, the average 30 yr FRM rate was 7.00% (hsh.com), with a $200,000 mortgage (P & I only), your monthly payments would be $1,331 and you would pay a total of $279,016 in interest over the life of the mortgage. Yesterday the average 30 yr FRM was reported to be 4.57%, with a $200,000 mortgage (P & I only), your monthly payments would be $1,022, and you would pay a total of $167,816 in interest over the life of the loan.
Just by having a few points lower interest rate, you would be saving over $111,000 in interest over the life of the loan, and hundreds per month on your payment. To look at it another way, for the same P & I monthly payment of $1,331, you could have a $200,000 mortgage at 7.00% or a $260,000 mortgage at 4.57%.
If you also factor in the incredible buyers market we are now in, what you can buy for $260,000 today would not even compare to what you could buy for $200,000 2 years ago. I have recently been helping many buyers who understand the power of these low rates, and I hope that this example will educate others so they might not have any regrets when interest rates start to climb again.
