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What the current mortgage rate increases really means to the bottom line

Posted by Jeff Trounsell (jefftrounsell) on Jun 24 2013
Blog >> June 2013

If your currently looking at purchasing a home, you've probably been watching the mortgage rates ... particularly them going up since the beginning of June.

 

Granted, these rates are still historically low, however lets look at what the change in the 5yr fixed rate from 30 days ago to todays current rate really means to the homebuyer.

 

Scenario;

5yr fixed before 2.84%

5yr fixed now 3.29%

Mortgage Amount borrowed $250000

25-year amortization

 

Before: A $250000 Mortgage would carry for $1162.69 a month

Now: That $250000 Mortgage carries for $1220.63 a month

Not much right? ... Wrong. 

 

Differences;

$69761.40 total in monthly payments with the 2.84% rate

$73237.80 total in monthly payments with the 3.29% rate ($3476.40 more in payments in the 5yrs)

$32786.72 paid in interest with the 2.84% rate $38101.40 paid in interest with the 3.29% rate ($5314.68 more in interest paid over the 5yrs)

 

Mortgage Balance at the end of 5yrs with 2.84% = $213025.32

Mortgage Balance at the end of 5yrs with 3.29% = $214863.60 ($1838.28 Higher Balance in 5yrs)

 

 ... Think about it.

 

BONUS THOUGHT:

You've been looking and negotiating for your new home with the seller and you walk away because of a $5000 difference in sellers bottom dollar and your top dollar.  You had a pre-approval with 2.84% but because you can't find something and act upon it quickly enough, the rate is now 3.29%.  With the original scenario numbers above, in order to keep your original mortgage payments at $1162.69, now that mortgage amount has been reduced to $238134 (you lost $11866 in mortgage purchasing power because of the higher interest rate).

 

...Kind of makes you think about that $5000 difference is asking/selling price you walked away from.


Last changed: Jun 26 2013 at 9:51 AM


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