Elaborating on Current Mortgage Interest Rates

I mentioned in my last post that interest rates have been – and continue to be – at historic lows. I also mentioned that sales figures are the strongest they have been since the government was offering the $8,000 tax credit to first-time home buyers in 2009. Clearly, there is a direct correlation between this year’s low rates and 2009’s tax credit with their respectively healthy sales figures, but I have the impression that the casual homeowner might not be aware one is significantly more advantageous than the other.

I’m far from a mathematician and figuring out the amount of interest you pay over the term of a fixed rate loan can be tricky, so I just used one of the calculators a “mortgage calculator” Google search provided. According to MetroList data, the average sale price of a single family home was slightly over $306,000 in September. So, in the following example, I’ll use a 30-year conventional, fixed-rate loan for a $300,000 purchase price. In September 2009, interest rates were hovering around 5% (for the sake of round numbers). Over the 30 year term, without paying anything additional towards the principal, a homeowner would pay $279,767 in interest. With today’s mortgage rates hovering around 4%, just one percent less, the amount of interest paid is reduced to $215,608 – a $64,000 difference! So, don’t worry if you didn’t take advantage of the $8,000 tax credit… just don’t let another opportunity pass you by! Not only do you save a ton of money on the interest rate, but the monthly mortgage payment is nearly $200 less, increasing your buying power; more house for the same amount of money.

If you’re on the other side and considering selling your home, these historically low interest rates are the number one reason to get your house on the market today. And, if you read the previous post, inventory levels are down by a third compared to last year at this time. I’m far from an economist as well, but even I know that a low supplies mean higher prices.

Below is a graph of mortgage intrest rates back to 1960:

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