When we think about buying a home, we often consider style, size and of course, location, etc. But what about the loan that you receive for your new home? How important is a mortgage rate? Money best explains just how important a mortgage rate is when buying a home. They explain that the rate on your mortgage can make a huge difference in how much home you can afford and what the size of your monthly payments will be during the life of the loan.
Money gives a great example to help consumers understand the price differences:
If you bought a $250,000 home and made a 20% down payment — $50,000 — you would end up with a starting loan balance of $200,000. On a $200,000 home loan with a fixed rate for 30 years:
At 3% interest rate = $843 in monthly payments (not including taxes, insurance, or HOA fees)
At 4% interest rate = $955 in monthly payments (not including taxes, insurance, or HOA fees)
At 6% interest rate = $1,199 in monthly payments (not including taxes, insurance, or HOA fees)
At 8% interest rate = $1,468 in monthly payments (not including taxes, insurance, or HOA fees)
Money goes on to explain differences with Loan Term (15 years vs. 30 years), A fixed Rate vs. an ARM (adjustable-rate mortgages), taxes, HOA fees and insurance, closing costs, and finally, mortgage Insurance. All these things have an impact on how much you will pay a month.
In 2021, we saw that mortgage rates were at an all-time low, but 2022 is proving to be different already.
Yahoo! Finance mentions that: According to Freddie Mac,
Mortgage rates increased during the first week of 2022 to the highest level since May 2020 and are up more than half a percent since January 2021.
Yahoo Finance tells us (quoting Freddie Mac) how much higher the rates increased from this time last year.
- 30-year fixed rates increased by 11 basis points to 3.22% in the week. This time last year, rates had stood at 2.67%. The average fee remained unchanged at 0.7 points.
- 15-year fixed rose by 10 basis points to 2.43% in the week. Rates were up by 26 basis points from 2.17% a year ago. The average fee fell from 0.7 points to 0.6 points.
- 5-year fixed rates remained unchanged at 2.41%. Rates were down by 30 basis points from 2.71% a year ago. The average fee remained unchanged at 0.5 points.
Money shows us a graph of the Mortgage interest rates for the week ending January 6, 2022.
Even with the recent highs, mortgage rates in the low 3's are still historically very low. I wrote about rates back in June 2021, that will help give you context. Recent updates on how the mortgage rates are looking
But will current mortgage rates last? Freddie Mac's Khater noted that
“With higher inflation, promising economic growth and a tight labor market, we expect rates will continue to rise,"
However, even though rates are expected to climb in 2022, it is still a favorable market to get a loan and maximize your purchasing power.
Mortgage rates are one of the biggest things to investigate when buying a home and, that’s why people are taking advantage of these low mortgage rates right now. Interest rates can make the difference between you affording a $500,000 house and a $600,000 home. (If you are looking to invest, I wrote a blog Investing in Real Estate, in July 2021). In addition, a lot of homeowners can take advantage of refinancing as well. Not only will people save a lot of money in the long run, but it will also benefit you in the short term. Just think of all the things you can do with some extra money each month. If anyone is thinking about buying, this is still one of the better times.
Check out some purchase information on my website HERE. Also, If you would like to look into a Mortgage Calculator, I have that as well. This mortgage calculator can be used to figure out monthly payments of a home mortgage loan based on the home’s sale price, the term of the loan desired, the buyer’s down payment percentage, and the loan’s interest rate.
There is still no better time than now for setting down some roots and making a place your own!
If you are a first time home buyer, I wrote Tips When Buying Your First Investment Property, back in July 2021
If buying a home is an investment that you feel that you are ready for, CLICK HERE to search for active properties on my website, don't forget to subscribe!
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