The Federal Reserve’s signal that it doesn’t plan to raise interest rates for the rest of the year is quickly sending mortgage rates lower. Swings in mortgage rates frequently make or break your home buying options. When rates rise, it can squeeze your home budget to its limits, narrowing your home buying selection. But when rates drop, you’re in a better position to qualify for a loan amount that gets you your dream house. Let’s take a closer look at what a drop in interest rate means for you.
What a Drop In Interest Rate Means For You
How interest rates impact your monthly payment
A drop in interest rate means savings over the life of your loan. Although interest rates of 4.5 percent and 5 percent don’t sound far apart, it can mean a difference of tens of thousands of dollars over the life of a loan. Say you’re looking at buying a $300,000 home with a 30-year mortgage at 4.5 percent and 10 percent down. Your monthly payment (before taxes and insurance) is $1,368. If you wait until the interest rate is 5 percent, you’ll pay $81 dollars more per month in interest, which equates to paying over $33,000 more over the life of the loan. Quarters and halves of points may not strike you as an important factor when buying a home, but as you can see, jumping into the home buying progress when rates are low, can save you significant money.
Locking in rates
Most lenders offer a mortgage rate lock, allowing you to lock in today’s interest rate for a limited time. This allows buyers to have peace of mind that interest rates won’t go up even if rates rise before you close on your home. Some lenders do a float down as well. This means they may reduce your rate if it falls before your loan in funded. Be sure to shop with several mortgage lenders to compare rates, fees, loan types, and terms. As you can see just a small difference in interest rate can save you significant funds over the life of your loan.
Don’t wait for buying season necessarily
You’ve heard that spring is the hottest time to buy since sellers tend to list their homes in the spring. However, savvy buyers are realizing that stepping up their timelines and working faster to shop when rates are low, could save them money while shopping for a loan. Be sure to consult with a lender to see if buying when rates are low can offset your concerns about not being 100% ready to buy a home.
You may also like: 5 Ways to Effectively Communicate Mortgage Interest Rates to Millennials