Waiting a year for a lease to end or a promotion to be awarded can sound like a great thing when looking to buy your first home, but with mortgage interest rates expecting to trend upward over the coming year, a small percentage increase could mean big money over the life of your loan.
When I talk about 1% interest it sounds tiny, but what if I told you that amounts to an additional 50,000 you’ll be paying to your lender if you’re gearing up to purchase a median priced home in Charlotte?
Now it sounds serious!
So here’s the scenario:
According to the Charlotte Regional Realtors Association, the median price of a home sold in Mecklenburg County was $250,000 during October 2018. Currently, mortgage interest rates are hovering around 5%, with increases expected in the next year. Based on these statistics and with the help of MortgageCalculator.org, here’s the math for what that actually means for someone buying a house today, and a the same house a year from now (of course I’m not taking into account price inflation… that’s a discussion for another post)
Here’s the math:
** This analysis is brought to you by MortgageCalculator.org and my super-sweet Microsoft Excel skills**
Assumptions: again, I assumed that the price of the home was the median price for Charlotte of 250k, and that the loan is a conventional, conforming loan (aka 3% down with PMI until the borrow has 20% equity in the home, at which point PMI goes away). I estimated property taxes, which were a bit high as compared to what I saw on recent sales in the MLS, but we’d rather be a bit conservative, right? Homeowners insurance for this example was a downright guess and is dependent on each home/homeowner/insurance company/etc.
What this means for you (even if you don’t like math): With all things being equal, a 1% increase in your mortgage interest rate could cause you to pay $152 more each month for the SAME HOUSE. And this $152 a month causes you to pay PMI for a longer period of time (because it takes longer to get to the required 20% equity in the home). On a yearly basis you’re paying an additional $1,825 for the SAME HOUSE. Over the entire 30 year life of your loan, this means you’re paying an additional $55,973 to your lender… why? because of a measly 1% increase in your mortgage rate.