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Monday, September 10, 2012

How does interest rate changes affect your mortgage payment?

No one knows for sure what the interest rates will be next year.  No one knows for sure what the price of a home will be in two years. 

Further, there are other costs associated with home ownership beyond the principle (amount borrowed) and interest charges (cost of the borrowed money).  Things like homeowner insurance, property taxes, homeowner association fees, and maintenance/upkeep.

But one of the most important factors on how much a borrower qualifies for and the ultimate payment is the interest rate.

Here, in this brief explanation of the interest rate's impact on payment, I am going to use $150,000 as the principal amount (borrowed amount) and interest changes impact on mortgage payments.

A $150,000 mortgage for 30 years at 4% interest results in a monthly payment of $716.12 (principle and interest only).   If the interest rate climbs to 6% the principle and interest is now $899.23.  Over the life of a mortgage that is a significant amount.

Lets say one is on the fence about buying a home right now so they wait a couple of years.

Assuming the interest rates remain low but inflation takes off and the home price for the same home goes up 4% a year.  If my math is correct in two years the $150,000 home would be priced just above $162,000.

And the mortgage payment (again principle and interest only) at 4% is about $775 a month (about $60 a month more).   At 6% the new principle and interest payment becomes $1049.43. 
Only you know when it is the right time for you to buy or sell a home.   If now is the time for you to become a home owner, call me.

If you have any questions regarding buying or selling a house or condo in Florida, call me at 321-693-3850 or email me.


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