This post brought to you by Chase. The content and opinions expressed below are that of Modest Money.
I bought my first house a couple of years ago, and I can’t shut up about it. Not only am I saving bucketloads over what I used to pay in rent every month, I get to design this house to be exactly the kind of place I want to live. The perks of homeownership are many, and I’ve written about these elsewhere. In fact, a recent survey by Chase revealed that many Americans are poised to get off the sidelines and purchase a home this summer. Here I want to talk specifically about the benefits of buying a home now, as opposed to 6 or 12 months from now. Mortgage interest rates are still historically low, but they’re rising and topped 4% in June for the first time since November 2014. You may have missed out on the bottom-of-the-barrel interest rates that resulted from the Recession recovery, but that shouldn’t stop you from buying a home very soon before prices rise any more. You’ll thank yourself for decades to come. To understand why, let’s take a look at some of the math behind mortgage interest rate savings.
In the helpful infographic, you’ll see a common mortgage laid out in some detail. For first time homebuyers, the mortgage process may seem confusing. After all, you’ve likely never had occasion to totally understand one of these things. Mortgages are complex, but the most important figures are easy to understand. In this example, we’re working from a house that costs $343,300. This example assumes you’re paying 20% of this price as a down payment, leaving $274,640 to cover on your mortgage loan. Here’s how you’ll have that off at three different interest rates.
5%: Monthly: $1,474. 30-year Total Amount Paid: $530,758.
4.5%: Monthly: $1,392. 30-year Total Amount Paid: $500,962
4.0%: Monthly: $1,311. 30-year Total Amount Paid: $471,960.
For those of you without your calculators at hand, that’s a difference of $58,798 between the 5% and 4% interest rate, over thirty years. As you can see, that’s an enormous difference, one that would be sufficient to cover college tuition, another down payment, a car, and any number of other significant life costs.
Homebuyers should be conscious of other factors involving these low interest rates. Buying a home involves many other costs, more than simply the price of the house. You’ll have to pay closing costs, renovations, insurance, taxes and other homeowner necessities. If you don’t have the money to pay these out of pocket, you’ll have to get a loan, and you won’t be able to find a loan at a lower rate than the one offered when you get your mortgage. That’s why it’s important to anticipate the costs of these things and get that money loaned to you in advance, at the same low rate that you’re paying for the purchase of the house itself.
Chase has a lot of resources to help you navigate the homebuying process, including a lot of helpful representatives who would be happy to answer your questions in person or over the phone. They’ve been a good mortgage lender for me, and can help you understand the reality and the math of this complex process.