$110 a Month: The Difference a Year Makes in Interest Rates

• September 4, 2014

by Lark Turner

For the third week in a row, mortgage rates have settled at 4.10 percent, their lowest level in a year. One year ago, the average interest rate on a 30-year fixed-rate mortgage was 4.57 percent. On Thursday morning, Freddie Mac reported 4.10 percent as the average on the same type of loan. That .47 difference in rates impacts your mortgage payments more than you might think.

Using the example of a home buyer with excellent credit purchasing a $500,000 home, UrbanTurf examined how monthly mortgage payments changed between this year and last. In each case, we assumed the buyer put down a 20 percent down payment. These figures refer just to the principal and interest on a loan, and don’t take into account taxes or insurance.

Here are the two scenarios:

September 2013: The average mortgage rate was 4.57 percent.

Monthly mortgage payment: $2,043
Total outlay on mortgage (monthly payment x 360 months): $735,480

September 2014: The average mortgage rate is 4.10 percent.

Monthly mortgage payment: $1,933
Total outlay on mortgage (monthly payment x 360 months): $695,880

So, the difference between a rate of 4.57 percent and 4.10 percent is about $110 a month, or $39,600 over the life of the loan.

Here’s a look at the path of the rates over time:

The UrbanTurf Mortgage Rate Disclaimer: The rates reported by Freddie Mac for 30-year mortgages are usually the best rates that the most qualified borrowers can get, so borrowers or those considering refinancing should not necessarily read this news and think that they can go out and get a loan with the quoted interest rate.

This article originally published at http://dc.urbanturf.com/articles/blog/110_a_month_the_difference_a_year_makes_in_interest_rates/8931