Pause for a second and think about your mortgage rate. Maybe you live in a condo or a single-family home—may be, it’s your first time applying for a mortgage. Whatever the case, you’ve probably been quoted rates in the hundredths—2.59%, 3.15%—but have you ever seen a rate that’s in the thousandths?
You’re probably shrugging your shoulders and thinking, so what if they add an extra digit to my rate? What does that do for me? What’s the difference between a 3.375% vs. a 3.875% rate anyway?
Well, you’ve said it yourself without even realizing: half a percent.
Principal Payment Differences
Whether you’re looking to buy or refinance, Exact Rate is a tool that helps us cut off as much fat as possible when you’re applying for a home loan, so we can get you the cleanest rate possible.
To give you an idea of how it works, let’s imagine that you’ve bought a home for $350,000. You’ve made a 20% down payment and now need to pay off the rest of the $280,000 over the next thirty years.
A mortgage payment with a rate of 3.875% makes your monthly payment $1,894.33 with principal, interest, and property taxes. With a rate of 3.375%, that payment lowers down to $1,815.54.
It might look like a little but trust us, those $78.79 matters.
Why It Matters
It may not look like it, but those payments really add up. Over the course of a 30-year period, with a 3.875% rate, you’d end up paying $193,998.98 in interest. That’s right: $193,998.98—and that’s not taking into account the principal.
This isn’t out of the ordinary, because that’s how home loans work, but change the rate to 3.375% and see what happens: the interest you’ll need to pay over the next 30 years sinks down to $165,632.98.
This means that with just half a percent lower interest rate, you can save about $30,000.
That’s a down payment on investment property, savings for your IRA—you name it, you’ve got it. Not to mention that with Exact Rate, you’ll be able to offer rates that are closer to the ones borrowers will encounter at the closing table. This causes less back and forth at closing since the price at closing will be almost the same as what they were offered in the first place.
At the end of the day, rate differences matter because they save you money, and money saved opens up new doors for personal investment.