If you were to finance a hot dog for lunch, half a percent increase in interest rate probably wouldn’t worry you. Same with a TV, or maybe even when financing a car. You might gripe, but it’s not going to keep you up at night.
But when it comes to financing your home, a half a percent uptick in interest rates could cost you thousands of dollars. And that should keep you up at night.
Rates Predicted to Rise
While it’s true that some experts are predicting mortgage interest rates to remain unchanged, or even lower slightly, most believe that rates are on the rise. Perhaps not to the crazy-high double-digit levels of the 1980s, but enough to hit your wallet hard.
For instance, the Mortgage Bankers Association predicts that rates will rise by .6 percent by the fourth quarter of 2015. Not much if you’re buying a hot dog, but if you’re buying a house, that .6 percent could cost you thousands. To see how, let’s crunch the numbers.
Numbers Don’t Lie
Let’s say your dream house required a loan of $300,000 and you could get a 30-year, fixed-rate loan today for 4% APR. Over the life of your loan, you would pay $179,674 in interest.
Now let’s say you waited until fall to buy, thinking rates would stay the same or go down. But instead, as the Mortgage Bankers Association and other experts predicted, rates went up by .6 percent. The same $300,000, 30-year, fixed rate mortgage, now at 4.6% APR would cost you $211,380 in interest.
The bottom line: $31,706 more just for waiting. On a $300,000 home, that’s more than 10 percent. And if rates rise even higher, the damage only gets worse.
The Good NewsWe like good news. It’s the opposite of bad, and so much more fun to spread around. Given the fact that interest rates are still incredibly low (we’ve seen recent 30-year, fixed rates as low as 3.75% APR and as low as 2.63% APR on a 5/1 ARM), and that they've been creeping upwards recently, waiting may not be the smart move. But seizing the chance to shop lenders before rates go up any further definitely is.
Rates as low
as 2.63% APR. See now!
Sites like LendingTree, one of the nation’s most respected loan comparison websites, help you do just that easily and for free. Lenders compete to win your business by giving you the best rate and terms, and you choose the loan you want, resting easy that you got the very best deal.
If rates do rise, you’ll be happy you did. And so will your wallet.